Bank advances rise in Q3, but asset quality still a concern

Advances by banks seem to be slowly on the rise as provisional data from the third quarter suggest. While asset quality continues to remain a concern, lenders say it is likely to be better than previously estimated.

“Restructuring requests are lower than expected and largely lesser than the provisioning for it. Most borrowers have shown a willingness to pay. The pain is likely to be lesser than initially thought of but everyone is cautious,” said a banker who did not wish to be named.

Collection efficiencies

The loan restructuring window came to an end last month and with economic activity on the mend, collection efficiencies are expected to improve further.

A clearer picture will emerge when banks start to report their performance for the September to December 2020 quarter later this month.

Provisional data being reported by banks to the stock exchanges indicate that advances growth, which had been muted in previous quarters, is now picking up.

HDFC Bank reported a 16 per cent growth in advances at ₹10.82-lakh crore as on December 31, 2020, compared to ₹9.36-lakh crore a year ago, while Bandhan Bank Bandhan Bank reported a 23 per cent growth in loans and advances at ₹80,255 crore in the third quarter of this fiscal compared to a year ago.

Most lenders, including NBFCs, have said their disbursements are slowly inching back to pre-Covid levels, but many say credit demand is muted for fresh expansion plans.

“With bounce in high frequency-led indicators, increased spending and consumption, we expect credit growth to rise quarter-on-quarter by three per cent to four per cent translating to seven per cent to nine per cent year-on-year growth. SME lending (under ECLGS), some pick-up in industry and service sector credit, robust momentum in credit card and other retail loans will provide support,” said ICICI Securities in a report.

Motilal Oswal Institutional Equities said in a report that loan growth is likely to pick up, led by improving consumer sentiment and a good festival season. “On the other hand, wholesale lending remains muted. Growth is driven by a secured retail book as the bank remains cautious of higher stress in the unsecured portfolio,” it said.

It, however, said it remains watchful of asset quality as banks recognise non-performing loans from moratorium and overdue loans. “Although, overall trends have fared better than earlier expected, led by sharp improvement in collection efficiency,”it said.

Economic impact

The Reserve Bank of India’s Report on Trend and Progress of Banking in India in 2019-20 has cautioned that the asset quality of the banking system may deteriorate sharply, going forward, due to the uncertainty induced by Covid-19 and its real economic impact.

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