Bank credit growth moderates in Q2, deposit growth matches pace

Credit growth for banks continued to be healthy in the second quarter of the current financial year at 10-24 per cent but moderated slightly from 14-30 per cent in the previous quarter, as per provisional numbers declared by some lenders so far.

Deposits matched pace with credit, growing 13-23 per cent y-o-y, but also slightly lower than 15-21 per cent in the previous quarter. Low-cost CASA deposits fell for most banks due to intensifying competition and higher interest rates but much of the impact was offset by significant growth in bulk term deposits.

Growth drivers

Analysts believe loan growth was driven by the retail and MSME segments. Herein, personal and mortgage loans are seen leading growth and vehicle, small business and credit cards are expected to see healthy growth.

However, overall credit growth is expected to moderate in FY24 compared with the previous fiscal. In a recent report, CRISIL pegged loan growth dipping to 13-13.5 per cent in FY24 from 15.9 per cent in FY23, due to expected decline in GDP, lower working capital requirements, robust bond market issues, and a high-base effect from the second half of FY23.

HDFC Bank leads growth

HDFC Bank was the outperforming outlier, with the bank’s balance sheet benefitting from the impact of the merger with erstwhile HDFC effective July 1. Advances of the bank grew 44 per cent sequentially whereas deposits grew 14 per cent. As a result, the bank saw the highest y-o-y loan and deposit growth of 58 per cent and 30 per cent, respectively.

CSB Bank was an outlier in terms of credit growth with loans growing 27 per cent yoy. The sequential loan growth was at the upper band of the industry trend of 1-5 per cent.

YES Bank and South Indian Bank showed muted loan growth of 10 per cent. YES Bank saw deposit growth outpacing loans at 17 per cent but for South Indian Bank deposit growth was equal to credit growth at 10 per cent.

AU Small Finance matched the industry high deposit growth of 30 per cent yoy led by strong sequential deposit growth of 9 per cent. The bank said credit demand remained resilient across products in Q2 despite domestic inflationary pressures, below-average monsoon, elevated interest rates and tight system liquidity.

NBFC growth trends

The robust loan growth trends were also visible across NBFCs. Industry leader Bajaj Finance posted a 33 per cent rise in AUM on the back of 26 per cent increase in disbursements. Deposits of the NBFC were up 39 per cent on year.

L&T Finance reported a 33 per cent growth in its retail loan portfolio led by 32 per cent jump in disbursements during the quarter, whereas Poonawalla Fincorp’s AUM rose 53 per cent y-o-y on the back of record high disbursements worth ₹7,750 crore.

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