Strong loan growth, stable asset quality seen powering Jan-March bank numbers

will also gain from mark-to-market gains from the easing in treasury yields last quarter and also from a Reserve Bank of India (RBI) relief on provisioning requirements on their alternative investment fund (AIF) investments.

Analysts broadly expect the growth momentum in retail loans and business banking to continue.

In an preview, Motilal Oswal said it anticipates some moderation in the unsecured segment due to tightening measures by the RBI. The brokerage was referring to the higher risk weightages prescribed by the RBI on unsecured loans in November, the full impact of which will be felt in the fourth quarter.

"Deposit growth is gaining traction. While credit growth has been robust, deposit growth too has gathered pace on the back of aggressive competition, a push for deposits, and competitive term deposit rates offered by banks," Motilal Oswal said in a report.

"As a result, the gap between credit and deposits has narrowed to 3.4% in March 2024. The credit-deposit ratio stays elevated at 80% as most banks will see healthy credit volumes amid the seasonally strong fourth quarter."

The brokerage expects a 7 to 11 basis point moderation in NIMs for ICICI, Axis and Kotak Mahindra Bank, while HDFC, SBI, Union Bank and IndusInd will be able to hold on to its NIMs. One basis point is 0.01 percentage point.

Nomura Securities expects banking return on assets to remain under pressure due to the impact of higher deposit rates on margins. Nomura analysts said they will watch out for management comments from private sector banks on the loan growth outlook especially as loan to deposit ratio remains near peak for those lenders.

“Importantly, credit costs in the fourth quarter for private banks should see some quarterly moderation aided by the RBI’s relaxation on provisions for AIF investments, while PSUs should continue to see benign trends aided by NPA recoveries,” Nomura analysts said in a report. They said they will watch out for loan growth outlook amid deposit mobilisation plans of IndusInd and .

Late last month, the RBI eased the provisioning requirements for banks and NBFC on their AIF investments, excluding equity investments and investments made through intermediaries like mutual funds. More importantly, it said provisioning will be required only to the extent of banks’ investment in the AIF scheme that is further invested in the debtor company, rather than on the entire investment in the AIF scheme.

Yes Securities expects bank treasury profit to rise in the fourth quarter as the benchmark 10-year bond yield is averaging 7.11%, about 16 basis points lower compared to December 2023.

“For private-sector banks, operating expenditure (opex) growth would generally slightly lag loan growth whereas for PSU banks, opex growth would materially lag loan growth on account of high base in the third quarter due to wage hike provisions,” Yes Securities said.

said better growth prospects and easier liquidity will support the banking sector in the fourth quarter. It expects a sharp contraction in loan-to-deposit ratio at , which could weigh on the bank’s margins. This, along with higher opex and some contingent provision build-up, could offset the one-off gains from the sale of HDFC Credila during the quarter.

“Overall credit growth continues to surprise positively while deposit growth too has picked up pace, albeit at a higher cost, and could hence weigh on margins,” Emkay said in a report. “However, broader asset quality remains healthy, barring some noise in the unsecured space which we believe is unlikely to blow up. That said, we remain slightly cautious on the sector and thus prefer banks with relatively healthy capital/provision buffers, management stability, and reasonable valuations,” it said.