HDFC Bank, India’s largest private lender by value, reported a 7% year-on-year increase in advances for the three months ended September, according to its preliminary business update for the second quarter. Deposits grew 15.1% during the period, outpacing the industry average growth of approximately 11.5%. Quarter-on-quarter, bank loans increased by 1.3% and deposits increased by 5.1%.
“Deposit growth is the most important metric for HDFC Bank and appears healthy,” analysts at Sanford C. Bernstein (India) said in an Oct. 4 note. There is a clear improvement in the liquidity environment. ”
Strong credit growth in a resilient economy has led to banks’ loan-to-deposit ratios reaching around 80% as of April 2024, the highest level in nearly 20 years, with both the Reserve Bank Governor and the Finance Minister facing high costs. He warned against the growing dependence on large deposits and potential liquidity risks;
While banks chased deposits, banking regulators also cracked down on some categories of unsecured lending, the fastest-growing segment of the credit market, to curb some of this loan growth.
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Analysts at Sanford C. Bernstein say loan growth slowed in the second quarter, but expected average loan growth for all of FY25 was higher, with an improved corporate and personal loan mix, and loan growth slowing in the second quarter. The impact on margins is expected to be minimal as the amount has increased. Securitization of loans. “Overall, we think this is a good number, and if margins remain stable despite slowing loan growth, we have great confidence in the story of a faster normalization. Dew.”
Other banks that have released Q2 updates include Punjab National Bank, Bank of Baroda, YES Bank, Karur Visya Bank, South Indian Bank and CSB Bank.
Loans to these banks grew 11% to 14% year over year and 3% to 7% quarter over quarter. CSB Bank was an outlier with loan volumes increasing 19.6% year over year and 8.2% quarter over quarter due to its much smaller base compared to its peers. Deposits at these banks grew 8% to 18% year over year and 2% to 5% quarter over quarter. Once again, CSB Bank outperformed with growth of 25% year-on-year and 6% quarter-on-quarter, respectively.
The quickening pace of deposit cleaning is likely a result of a series of measures taken by banks over the past few months. Still, much of the growth is likely to come from increased term deposits, as the pace of low-cost current and savings account (CASA) deposits remains slow at most financial institutions, with the exception of Yes Bank.
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“HDFC Bank’s deposit growth was driven by strong term deposit growth of 6.7% quarter-on-quarter,” Macquarie Research said in a report on October 4. This number for the fourth quarter suggests year-over-year deposit growth of 17%, which compares favorably with system deposit growth expectations of approximately 11%. ”
The research firm said the slow pace of progress may be due to a decline in corporate loans (down 3% quarter-on-quarter), in line with banks’ guidance to sell some corporate loans as part of their merger strategy. He added that it is expensive.
Macquarie said growth was driven by a strong CRB book (up 5% quarter-on-quarter), while consumer lending growth was relatively modest at 3% quarter-on-quarter. Ta. “Some retail loans may have also been sold this quarter,” he said, adding that he expects margins to improve in the coming quarters as incremental deposits replace the erstwhile HDFC’s high borrowings. He added that it will be done.
HDFC Bank completed its merger with its parent company, Housing Development Finance Corporation, in July last year.
However, the situation for public sector banks is mixed, with Punjab National Bank and Bank of Baroda, two major financial institutions that have released provisional figures so far, recording slightly higher loan growth. Subsequently, PNB’s deposit growth outpaced its loan growth.
Bajaj Finance, the country’s largest retail focused NBFC, also reported a healthy 21% year-on-year growth in deposits in the second quarter. However, like PSU banks, this was slower than the 29% growth in AUM of NBFCs, even though they offer a much smaller deposit base and higher deposit interest rates.
Earlier this week, Crisil Ratings predicted that bank credit growth would be 14% in FY25, although slower than 16% in FY24, with some relief expected from a review of risk weights for some categories of unsecured loans. The company announced that it is expected to maintain a healthy growth rate of around 50%. -Currently one of the fastest growing segments for banks. The bank’s ability to mobilize cost-effective deposits continues to be a key factor in sustaining this growth, the company said.
After reporting strong growth in FY24, CareEdge Ratings said in a statement dated October 4 that credit demand is expected to slow in FY25 due to subdued unsecured retail trade and slower growth in advances for NBFCs. mentioned in the memo. “Banks’ credit acquisition is likely to face challenges as emphasis is placed on strengthening the deposit base and managing the credit-to-deposit ratio (currently hovering around 80%) and the proposed LCR norms. growth is likely to be slower than initially expected.”
As of September 20, bank loan growth was 13.0% year-on-year and deposit growth was 11.5%, according to the latest RBI data.
(Information provided by Shayan Ghosh)
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