Early updates by four private sector lenders on the first quarter of the current fiscal year confirm that the second wave of the pandemic has stalled the nascent revival in loan demand.
But the impact differed among lenders. India’s most valuable lender, HDFC Bank, saw its retail loan disbursements plummet, but overall loan growth remained stable.
The lender said its retail disbursements were down 30% from the previous quarter, which resulted in the outstanding retail loan book to contract 1% on a sequential basis. The overall loan book showed modest growth of 1.3% sequentially.
To be sure, part of the pain on the retail front for HDFC Bank was also because it was penalized by the regulator. The Reserve Bank of India (RBI) had barred the lender from issuing credit cards to new customers until it fixes the problems of frequent digital outages. The central bank is yet to lift this restriction on the bank.
Nevertheless, the impact of the second wave was visible. Corporate loans showed 1.5% quarter-on-quarter growth, while commercial and rural banking loans grew by 4%.
Analysts said the second wave’s impact is manageable for the bank. “This is a positive read for HDFC Bank, as well as ICICI Bank/Axis Bank, as it compares with a strong base in 4Q and impact of lockdowns on new lending in 1Q,” analysts at Jefferies India Pvt. Ltd wrote in a note.
To be sure, year-on-year growth was strong at 14.4%, for the bank. Note that the first quarter of FY21 was hit by a nationwide lockdown and loan growth contracted sharply during that period. Ergo, the year-on-year growth this time comes off a low base and is at best an optical relief. Notwithstanding this, the growth for the June quarter was the slowest since the pandemic broke last year.
Peers such as Federal Bank, Yes Bank and CSB Bank, too, showed decent growth on a year-on-year basis mainly due to a low base. But all three lenders saw their loan books contract on a sequential basis. Federal Bank’s loan book shrank 1.6%, while Yes Bank showed a 1.8% contraction. CSB Bank’s loan book dropped 3.5%.
Analysts said large lenders such as ICICI Bank, HDFC Bank and Axis Bank were able to weather the second wave better than others.
Macquarie Capital Securities (India) Pvt. Ltd said in a note that HDFC Bank’s loan growth has been faster than the industry, and that indicates that the lender has gained market share.
HDFC Bank has been clocking strong growth in corporate loans for the past four quarters even as its retail loan book growth slowed. While HDFC Bank’s steady loan growth may support its valuations, the bank’s shares have underperformed the broader market, as well as peers such as ICICI Bank and Axis Bank, so far this fiscal year. ICICI Bank and Axis Bank are yet to release updates on the June quarter.
Despite this, the private sector bank’s shares are trading at a multiple of more than three times the estimated book value for FY22, higher than most of its peers.
HDFC Bank will need to improve its retail loan growth in the coming quarters, which will not be easy. The uncertainties regarding economic activity have heightened after the second covid wave and the threat of a third wave weighs on sentiment. Moreover, the regulator’s restrictions on credit cards remain too.
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