Banks see uptick in credit growth and asset quality likely to improve

“Credit offtake, according to latest RBI data, is showing a gradual improvement and has reached the 7.3 per cent mark, which is mainly driven by retail and MSME segments. Festive and pent up demand is expected to push credit growth,” the note said, adding that monthly credit card spend also crossed Rs 1 trillion mark also pointing to improved demand conditions.

HDFC Bank – the country’s largest private lender - reported loan book growth of 16.4 per cent year-on-year (yoy) to Rs 12.6 trillion as of December 31, 2021, over Rs 10.82 trillion a year ago. The traction for growth was stronger in the commercial & rural banking segment which grew by around 29.5 per cent over December 2020 and around 6 per cent over September 2021, the bank said.

A report by Motilal Oswal Securities said earnings for private banks are likely to pick up, led by recovery in business growth and fee income and a gradual reduction in credit costs. “We estimate PSBs to see continued traction in their operating performance, supported by modest business growth and a gradual reduction in provisions,” the report said.

Margins for banks are likely to remain steady with some positive bias due to reduction in stress levels.

“NIMs are expected to be largely steady with some positive bias, nearly 3-4 bps, as reduced stress would lessen reversals, healthy CASA would cushion bottoming of interest rates with gradual release of liquidity buffer,” ICICI Securities said.

Also most lenders are likely to report improvement in asset quality on the back of better collection efficiency and recovery as economic activity normalised in the absence of any major lockdowns during the third quarter.