The Financial Express
RBI’s release on loans’s highlights several key takeaways: (i) there are signs of a reversal from cyclical highs in loan growth following a strong period of growth; (ii) this trend is observed in almost all key geographic markets, including states and regions; (iii) the trend is also reflected in the size of loans being issued; (iv) even working capital-related loans show early signs of reversal; and (v) both private and public banks are experiencing similar trends.
Probability of loan growth slowing from elevated levels has increased: The latest release shows— loan growth was healthy at 17% y-o-y with nearly similar performance across (metro, urban, semi-urban and rural) markets; (ii) nearly all the states are showing trends of slowing down, with sharp decelerating trends in North India; (iii) demand for working capital-linked products too is showing a similar trend of reversing from peak levels; (iv) from a ticket size perspective, the slowdown is highest in the Rs 10-40 mn ticket size, while it is holding up in the smaller and larger ticket sizes; (v) private and public banks are showing similar trends.
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Intent to lend is still there from lenders, but it’s hard to ignore the probability of slowdown ahead of us: Our conversations with all segments of lenders carry a similar line of thought wherein the intent to lend is still comfortable. Unlike the previous decade, where we saw lenders vacating the market as the slowdown prolonged for a much longer period, we are building the case that lenders have a strong intent to lend to all segments of customers at an appropriate interest level that reflects their cost of funds and adjusts for the riskiness of the customer segment being targeted. However, it is hard to ignore the macro risks which can lead to a slowdown in loan growth. We are not too sure if this is being led by higher interest rates as the pass-through is different in this cycle compared to what we have seen in the previous ones, given that the loan portfolio is linked a lot more to EBLR (external benchmark) versus MCLR/base rate or PLR that was in the previous cycles.
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Prefer to keep a positive outlook on asset quality and credit costs: Currently, there seems to be limited risk to asset quality in the cycle. There is no evidence of excessive lending towards any particular sector, nor signs of abnormal asset build-up or higher-than-normal levels of leverage across sectors. This would imply that the slowdown in loan growth, if any, is probably unlikely to result in asset-quality stress. We have been arguing in the past that the increase in interest rates that we are witnessing currently has little to do with domestic credit growth and has been to address inflation and exchange-related issues. We factor in lower credit costs for FY2024-25E.
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