Robust loan growth; spreads decline more for PSUs

1 Feb 2024 , 10:35 AM

Sequential growth was led by service, MSMEs and vehicle loans. Unsecured loan growth though moderating, still remains strong at 28% on a year-on-year basis. Analysts at IIFL Capital Services are forecasting overall loan growth to ease to 13-14% in FY25 due to deposit constrain (12.5% year-on-year). Loan yield for PSU banks declined 12 basis points sequentially versus 2 basis points rise for private banks, perhaps due to higher growth in corporate loans. Incremental spreads declined more for PSU banks (31 basis points sequentially) versus private banks (14 basis points). Analysts at IIFL Capital Services expect modest loan yield improvement led by recent price hikes, but divergent residual deposit-repricing and NIM trends among banks in the near-term. IIFL prefers Axis Bank, HDFC Bank and IndusInd Bank.

Loan growth remains robust, but to be constrained by deposits going ahead

System non-food loans grew 2.2% MoM and 20% YoY (16% YoY excluding HDFC merger) in December 2023. Deposit growth lags at 12.5% YoY, resulting in LDR inching up to all time high of 79.5%. Sectoral deployment data shows sequential growth mainly led by Services, MSMEs and Vehicle loans. Unsecured loan growth still remains strong at 28% YoY. While the demand remains strong, analysts at IIFL Capital Services are forecasting system loan growth to slow down to 13-14% in FY25 due to funding constrain.

Incremental loan yields decline for PSU bank

WALR on fresh loans declined 12 basis points sequentially for PSUs versus 2 basis points rise for privates, perhaps due to higher growth in lower yielding corporate loans for PSUs. MCLR increased by 5-10 basis points for PSU banks as well as few private banks (RBL, Kotak, ICICI and HDFC). Analysts at IIFL Capital Services expect limited yield improvement hereon from back book re-pricing, but recent rate hikes in personal and NBFC loans should aid incremental loan yields

Incremental cost of deposits continued to rise

WATDR on fresh deposits inched up 17 basis points sequentially, largely similar for both Private and PSU banks. However incremental spreads declined more for PSU banks (31 basis points sequentially) versus Private banks (14 basis points). IIFL’s residual cost of deposit re-pricing analysis shows 5-40 basis points of further increase in cost of deposits, and divergent near-term margin outcomes.