Indian private banks maintain positive outlook on loan growth through challenges

The RBI’s decision to heighten capital requirements for personal loans, credit cards, and lending to non-banking finance companies (NBFCs) has presented a formidable challenge to banks. However, instead of curbing loan growth, banks have opted to absorb the increased capital requirements.

In the face of obstacles such as difficulties in raising deposits and stricter capital requirements set by the Reserve Bank of India (RBI), Indian private banks are maintaining an optimistic stance regarding the sustainability of loan growth in the upcoming fiscal year.

Despite regulatory hurdles, these banks anticipate loan growth to persist in the “high teens,” with various sectors like vehicle finance, consumer finance, and microfinance driving the expansion.

The RBI’s decision to heighten capital requirements for personal loans, credit cards, and lending to non-banking finance companies (NBFCs) has presented a formidable challenge to banks. However, instead of curbing loan growth, banks have opted to absorb the increased capital requirements.

Kotak Mahindra Bank, for instance, has expressed confidence that its loan book will continue to expand in the “high teens” in the forthcoming year, demonstrating resilience amid regulatory changes.

IndusInd Bank is projecting credit growth of 18-20% for both the current fiscal year and the next, while RBL Bank foresees a 20% growth over the subsequent two years. However, HDFC Bank and ICICI Bank, two major private banks in India, have refrained from publicly disclosing their loan growth forecasts for the upcoming year.

Sumant Kathpalia, CEO of IndusInd Bank, highlighted that credit expansion would be spearheaded by diverse sectors such as vehicle finance, consumer finance, and microfinance. This diversification in lending activities is expected to buoy overall loan growth despite regulatory headwinds.

Over the past year, Indian banks’ credit has surged by 15-16%, excluding the impact of the merger between HDFC Bank and its parent HDFC Ltd. Notably, unsecured loans and credit cards have experienced the most substantial surge, reflecting shifting consumer preferences and spending habits.

Jaimin Bhatt, Group Chief Financial Officer of Kotak Mahindra Bank, noted that despite the RBI’s imposition of higher risk weights, it would not significantly hinder the bank’s growth in unsecured loans. Similarly, HDFC Bank, ICICI Bank, and IndusInd Bank reported varying degrees of impact on their capital ratios due to increased risk weights but all maintain robust positions to support loan growth.

While private banks boast strong capital ratios, liquidity constraints and banks’ reluctance to raise deposit rates pose challenges. Currently, bank deposit growth lags behind credit growth by 6.7%, prompting some lenders to consider moderating loans. Axis Bank’s Chief Financial Officer, Puneet Sharma, stressed the importance of aligning loan growth with deposit growth in the long run, given prevailing liquidity conditions.