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Stable performance across metrics on loan growth

The key takeaways from the RBI’s release on loans: (1) Loan growth is holding up at ~20% (higher due to the merger of HDFC Ltd with HDFC Bank), which would be weighing down on the various growth metrics until 2QFY25. (2) Private banks are growing faster than public banks. (3) Household demand for loans is holding up relatively well. The intent to lend is still holding up, as there is negligible stress on the balance sheet of all banks. (4) Corporate capex-led demand appears to be quite limited.

Stable trends reported by banks in 4QFY24

The latest release (4QFY24) from the RBI on segmental information shows: (1) Loan growth was at ~20% yoy, with nearly similar performance across (metro, urban, semi-urban and rural) markets (Exhibits 1 and 5). (2) Private banks are growing faster, but primarily due to the reported data, including the merged entity of HDFC Ltd and HDFC Bank. Public banks are showing stable trends at 13-14% yoy. (3) Ticket size growth (Exhibit 3) shows a slowdown in the large ticket size loans (Rs1 bn and above), which could be explained by the slowdown in lending to NBFCs (Exhibit 13). (4) Growth in the household sector appears to be comfortable, but the government sector has seen a sharp slowdown (Exhibits 7 and 8). Long-term loans, which is driving demand, appears to be driven by retail loans (5) Private and public banks have a relatively more granular portfolio than what we have seen in the previous corporate cycle (Exhibits 10, 11 and 12).

Granular portfolio, with less visibility of a capex cycle-driven loan demand

When we look at the various metrics—ticket size, type of loans (working capital or term loan), sectors, type of banks and state-wise distribution of growth—the underlying trends broadly suggest that the growth that we are seeing is much more broad-based. We have highlighted that the impact of higher interest rates on loan demand remains weak, and the intent to lend and ability to repay remains a driving force of loan growth. The intent of lenders (across players such as public, private or SFBs) is still positive. MSME is an area of focus, largely led by improvement in tools such as ability to monitor or origination. The data also suggests that the corporate capex cycle-led demand for loans remains weak. The strong flow of credit possibly explains the lower delinquency levels across lenders—this trend is likely to continue, with the only risk coming from deposit mobilization. On deposits, while the situation is not worrisome, the gap between loans and deposit growth needs to converge.

Keeping a favorable outlook on asset quality for the near term

Credit growth in this leg of the cycle is only marginally ahead of nominal growth, and we are not yet seeing any signs of excessive growth in any segment (even unsecured loans have been slowing down across players). The net NPL ratio is at an all-time low and we shall change our views on credit costs, if there is any unforeseen development. Most early warning indicators that we are able to monitor does not suggest any stress in the portfolio currently.

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