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Banks: Unsecured loan growth still strong; spreads improve

18 Apr 2024 , 03:29 PM

System non-food loans grew 0.5% MoM and 20% YoY (16% ex. HDFC merger) in Jan’24. MoM growth was led by MSMEs, Agri and unsecured loans (2% MoM/28% YoY despite higher risk weights), while NBFC loan growth declined 1% MoM. Analysts of IIFL Securities forecast the overall loan growth to ease to 13-14% in FY25 due to deposit constrain (13% YoY). Incremental spreads improved 13-22 bps MoM for both private and PSU banks, led by higher loan yield and lower cost of fresh TDs. However, o/s spreads declined 6bps MoM for the PSU banks. Analysts of IIFL Securities expect modest loan yield improvement led by the recent price hikes (avg. MCLR up 8bps QoQ), but divergent deposit-repricing and NIM outcome among banks in the near term. Prefer Axis, IIB and HDFC. 

Unsecured growth strong, high LDR to limit credit growth: 

System non-food loans grew 0.5% MoM and 20% YoY (16% YoY ex. HDFC merger) in Jan’24. Deposit growth improved, but lags at 13% YoY; resulting in LDR inching up to an all-time high of 80%. Sectoral deployment data shows growth, mainly led by MSMEs and Agri loans. Unsecured loan growth remains strong at 28% YoY, while NBFC loans declined 1% MoM (+17% YoY). Analysts of IIFL Securities forecast system loan growth to decelerate to 13-14% in FY25, due to the funding constrain. 

Incremental loan yields inch up MoM: 

WALR on fresh loans improved 8-12bps MoM, as banks passed on higher COF selectively (avg. MCLR up 5bps for both private and PSU banks). Analysts of IIFL Securities expect limited yield improvement hereon from the back book re-pricing; but the recent interest rate hikes in personal and NBFC loans should aid incremental loan yields.

Incremental spreads improve, but o/s spreads decline for PSU banks: 

Cost of fresh TDs fell 6bps MoM, driving 19bps improvement in the incremental spreads. However, o/s spreads declined for PSU banks (- 6bps MoM) vs 2bps increase for private banks. Analysts of IIFL Securities residual cost of deposit re-pricing analysis shows 10-40 bps of further increase in cost of deposits, and divergent near-term NIM outcomes.

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