Finance

Bank credit may grow 7% YoY in Q2; NBFC disbursals to pick up QoQ

Besides bank announcements, the markets are waiting for judicial outcomes related to the classification of accounts as NPA and the levy of compound interest in case of accounts under moratorium.

Banks may register around 7% credit growth year on year (YoY) in the quarter ended September and non-banking financial companies (NBFCs) may see a pick-up in disbursements, said analysts. Asset quality is expected to remain stable as the moratorium, in effect through much of the quarter, would have saved stressed accounts from turning bad. The Supreme Court being standstill on non-performing asset (NPA) classification will also keep a lid on lenders’ bad-loan numbers.

“We expect banks/NBFCs within our coverage to report credit growth of 7.3/5.8% YoY vs. 8.2/7.1% in 1QFY21,” HDFC Securities said in a recent note, adding, “Deposit growth is likely to have exceeded credit growth for our coverage banks, and we expect large private banks within our coverage to have fared particularly well on this front.”

Analysts at the broking firm said they would watch disbursals under the credit guarantee scheme, collection efficiency trends and early-bucket delinquencies. Bank-level commentary on the utilisation of the Covid-related stress resolution framework and additional provisions related to the pandemic will also be closely tracked. Besides bank announcements, the markets are waiting for judicial outcomes related to the classification of accounts as NPA and the levy of compound interest in case of accounts under moratorium.

As for NBFCs, even as disbursements improve on a sequential basis, Y-o-Y growth in assets under management (AUMs) may fall as disbursements fail to keep pace with repayments. In a recent note, Emkay Global Financial Services said discussions with management and disclosures by leading NBFCs indicated that business activities in September had reached only about 70-75% of the previous year’s level. “Therefore, we expect a weak quarter from our NBFC universe, with flat AUM quarter on quarter (QoQ) but with visible signs of revival in disbursements,” the note said.

Net interest margins (NIMs) are expected to shrink across the universe of lenders as the fall in interest rates may have affected a larger share of their books during the quarter. Banks’ assets are likely to have been re-priced more swiftly than their liabilities and a relatively weak credit-deposit (CD) ratio could also push NIMs down. NBFCs may be better off as the abundant liquidity in the system could help them maintain margins.

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