Private banks' loan books shrink in Q1 amid second wave of Covid-19

IndusInd, YES, Federal, and CSB post 1-3.5% sequential decline; HDFC Bank bucks the trend with 1.3% growth

Four small- and mid-sized private banks suffered a contraction in loan books in the June 2021 quarter (Q1FY22) over the previous one as they faced the brunt of the second wave of the pandemic.

However, HDFC Bank, one of the country’s largest private-sector lenders, bucked the trend with a marginal 1.3 per cent sequential growth rate in advances, despite restrictive lockdowns impacting economic activity.

Sequentially, the credit contraction was between 1 per cent and 3.5 per cent for IndusInd Bank, YES Bank, Federal Bank, and CSB Bank.

Bankers said even in the normal course business was in slow gear in the first quarter of the financial year. This year curbs were imposed in various parts of the country to contain the spread of the pandemic and they disturbed economic revival, which has been underway since the third quarter of FY21.

However, year-on-year (YoY) comparison paints a different picture as all banks barring one reported impressive growth in advances, albeit due to a low base.

While credit expansion was hit, banks continued to see a surge in deposit growth. In the April-June quarter of FY22, HDFC Bank’s advances grew by 14.4 per cent YoY to Rs 11.47 trillion against Rs 10.03 trillion as of June 30, 2020. 

According to the disclosure made to the exchanges, the lender’s retail loan books grew 9 per cent YoY, but sequentially it were down 1 per cent against the March quarter.

On the other hand, commercial and rural banking loans grew by 25 per cent YoY and 4 per cent sequentially, while other wholesale loans grew by around 10.5 per cent over June 30, 2020, and around 1.5 per cent over March 31, 2021, at a time when large companies are deleveraging or moving to the bond market to raise money, taking advantage of the cheaper rates available there.

On the liabilities side, the bank’s deposits grew 13.2 per cent YoY to Rs 13.46 trillion in Q1FY22. Sequentially, the deposit base of the bank was up 0.8 per cent from the March quarter. The bank’s CASA ratio stood at around 45 per cent at the end of Q1FY22 against 40.1 per cent as of Q1FY21 and 46.1 per cent as of Q4FY21.

Private lender YES Bank’s advances shrunk in Q1FY22 on a YoY basis and also sequentially, reflecting the economic and business impact of the pandemic. Sequentially, the loan books contracted 1.8 per cent to Rs 1.63 trillion at the end of June 2021 from Rs 1.66 trillion in the previous quarter ended March 2021.

The bank’s deposits rose by just 0.2 per cent to Rs 1.63 trillion in Q1FY22 on a sequential basis from Rs 1.62 trillion. However, the deposits saw a 39.1 per cent rise on a YoY basis from Rs 1.17 trillion in June 2020 (Q1FY21).

Another private sector lender, IndusInd Bank, saw its advances contract 1 per cent sequentially to Rs 2.11 trillion, but on a YoY basis, they were up 7 per cent. On the other hand, deposits saw a 4 per cent increase sequentially in Q1FY22 to Rs 2.67 trillion and on a YoY basis, they were up 26 per cent over the June quarter last financial year.

Similarly, Kochi-based private lender Federal Bank saw its loan books contract 1.56 per cent sequentially at the end of Q1FY22 to Rs 1.32 trillion, but on a YoY basis, they were up 8 per cent. The deposit books of the lender increased by 10 per cent YoY to Rs 1.64 trillion at the end of Q1FY22 but sequentially (over March quarter) they were up by only 0.6 per cent. 

CSB Bank also saw a 3.52 per cent contraction in advances, sequentially, while YoY its loan books reported a 23.71 per cent increase to Rs 14,146 crore at the end of Q1FY22. Deposits of the lender also followed the same trajectory, contracting 2.54 per cent sequentially in Q1FY22 but expanding by 14.17 per cent on a YoY comparison. 

Overall, bank credit growth at 5.8 per cent stood nearly flat over the previous fortnight and the period ended March 2021. The subdued credit growth can be ascribed to risk aversion (both lenders and borrowers) and continued parking of excess liquidity with the Reserve Bank of India (RBI). Deposit growth at 10.3 per cent improved during the fortnight ended June 18, 2021, over the previous fortnight. 

In the recently released Financial Stability Report (FSR), the RBI said the environment for bank credit remained lacklustre amid the pandemic, with credit supply muted by persisting risk aversion and subdued loan demand. According to CARE Ratings, credit growth for FY22 is likely to remain in low double digits.