The economy may be progressively unlocking but India’s private sector lenders are yet to see a swift recovery in their lending business.




Updates by two private sector lenders indicate that loan growth is yet to be out of the woods. IndusInd Bank in a performance update on exchanges said that its loan book grew by a mere 2% in the September quarter. Analysts believe that part of this was by design as the management had indicated it would not chase growth but be pragmatic in lending decisions. With the financial health of many businesses uncertain due to the pandemic, banks have become cautious in their incremental exposures. “Overall, we expect loan growth to remain moderate, led by a weak environment amid the current challenges," wrote analysts at Motilal Oswal Financial Services in a note.

The story is similar for the most valuable lender HDFC Bank too. The lender saw its loan book grow by 16% in the September quarter, according to an update on exchanges. That is far slower than the 21% growth it reported during the first quarter. Recall that the first quarter was mostly under lockdown which led to a drastic drop in retail loan disbursements. Analysts believe that a slow retail loan growth is behind the slow overall credit growth in the second quarter. Indeed, even in the first quarter HDFC Bank’s loan growth was mainly driven by corporate loans.

With loan growth slower than before for private sector lenders, the performance of public sector banks is likely to be even worse. Public sector banks have been ceding their share in the loan market to private sector banks for long now.

The deposit side of the balance sheet is an upbeat story for lenders. HDFC Bank reported a 29% jump in its low cost current account and savings account deposits (CASA). These deposits now form 42% of total deposits. Overall deposit growth was an impressive 20%. IndusInd Bank too has seen a stabilisation in its deposit growth.

While the deposit growth is likely to comfort investors, perhaps the subdued loan growth still bothers. The muted response of shares of both lenders shows that investors would want to wait for some more time.