Indian private banks stay committed to loan growth targets amid increasing challenges

Loan growth targets: Private banks in country are standing firm on ir loan growth targets for upcoming fiscal year, anticipating sustained expansion in "high teens." Despite hurdles in raising deposits and imposition of stricter capital requirements by Reserve Bank of India (RBI), se banks remain optimistic about ir lending prospects.

Last November, RBI increased capital requirements for personal loans, credit cards, and lending to non-banking finance companies (NBFCs). Despite this, rar than impeding loan growth, banks have chosen to absorb higher capital requirements.

Kotak Mahindra Bank has affirmed that its loan book is poised to achieve growth in "high teens" in next fiscal year. IndusInd Bank is equally bullish, expecting credit growth to reach 18-20 per cent for both current fiscal year and following one. RBL Bank projects a 20 per cent growth over next two years, while HDFC Bank and ICICI Bank, two of India's largest private banks, have not publicly disclosed ir loan growth guidance for upcoming year.

Credit expansion is anticipated to be driven by various sectors, including vehicle finance, consumer finance, and microfinance, according to Sumant Kathpalia, Chief Executive Officer of IndusInd Bank.

Over past 12 months, Indian banks' credit has experienced a growth rate of 15-16 per cent, excluding impact of merger between HDFC Bank and its parent HDFC Ltd. Unsecured loans and credit cards have witnessed most substantial expansion.

Jaimin Bhatt, Group Chief Financial Officer of Kotak Mahindra Bank, highlighted bank's historical growth pattern, stating, "If you take nominal GDP, we would typically end up in space of 1.75 to 2X that growth at a time when we want to grow." Bhatt also said that RBI's increase in risk weights would not impede bank's unsecured loan growth.

Despite facing capital hits due to higher risk weights, private banks, including HDFC Bank, ICICI Bank, and IndusInd Bank, maintain robust capital ratios, supporting ir commitment to loan growth.

RBL Bank has asserted that it does not foresee need to raise fresh capital for next six to eight quarters. However, despite resilience of private banks, tight liquidity conditions and reluctance to increase deposit rates have led to a 6.7 per cent deficit in bank deposit growth compared to credit growth across system. Some lenders may be compelled to moderate loans in response to se circumstances.

Puneet Sharma, Chief Financial Officer of Axis Bank, commented in a post-earnings conference call this week, stating, "Given where system liquidity is, loan growth will converge with deposit growth in long term."

(With Reuters inputs.)