Growth rates for banks to stay healthy for the year: Nitin Aggrawal

"I think growth is still going well for the sector. If you look at Q1, it still has been stronger than how the trends typically are in the first quarter of the year and we have seen a good pickup and deposit growth also at the sector level in Q1 and which is where we think that the growth numbers per se for the sector will still be broadly as per the expectations," says Nitin Aggrawal, MOSL Institutional.

Let us also get in a take then as to what exactly you are anticipating going down the line. After the kind of quarterly numbers that have been delivered this time around, what is the expectation going into the next quarter? Do you believe that we will continue to see healthy loan growth across the board? Can you break it up in terms of which banks could positively surprise on the upside?
I think growth is still going well for the sector. If you look at Q1, it still has been stronger than how the trends typically are in the first quarter of the year and we have seen a good pickup and deposit growth also at the sector level in Q1 and which is where we think that the growth numbers per se for the sector will still be broadly as per the expectations.

We are not comparing loan growth to FY23 because FY23 was a very strong year in terms of loan growth but for the year probably 13-13.5% sort of credit growth for the system looks likely and wherein private banks will be doing better than that so they could probably be in the 17 to 18 range in the sector level.


But it is mainly to do with the earnings and the margins wherein we are expecting moderation to continue. Probably the 2Q margin compression at the sector level will be higher than what we are looking at in Q1.

Some banks who have already taken a big hit in Q1, of course, they will do a more calibrated fall, mainly like there have been only few results that have come till now and if you look at AU Bank has reported a 38 basis point compression in margins in Q1.

So, the bank has been guiding for a more calibrated fall in margins from here. But for the sector, I think the Q2, the decline will be more than Q1.

And let us get in a sense when it comes to growth as well because there is different commentary coming in from the likes of an HDFC Bank. They are saying they are letting the business go on the corporate front due to some mispricing. ICICI Bank is talking about a 20% growth for corporate. What is your outlook on the kind of commentary?
Yes, I think every bank looks at their growth opportunities given how the market pricing and the opportunities that are coming their way and that is how they evaluate the growth.

So, we have seen some differences in terms of growth rate across banks in different quarters. But by and large, we think the growth rates will stay healthy for the year.

HDFC Bank, this quarter was, yes, cautious in the corporate loan growth when we have seen a sequential decline, in fact, in the corporate loan book.

But over the year, particularly from second half, we are expecting the overall loan growth to recover and which is where if you look at the loan growth that we are pencilling in is close to 17 odd percent CAGR up till FY26.

I look at the economy, the economy is doing okay. Rural income is under pressure. The agrarian economy is under pressure. There are job losses which are happening in the IT world. New job creation is a problem. But if I look at the numbers from banks, they are going gangbusters, 15-20% credit growth. So, I am just trying to connect here. Whom are these banks lending to because I do not see too many options available at least.
Yes, actually, there has been a disconnect and we have also tried to find that answer with different banks. But if you look at HDFC Bank, which has been having the largest portfolio on the CRB private banks, it has been growing at almost around 29% in the CRB portfolio and the bank continues to guide be very steady growth for the next three years.

So, I think a combination of low penetration, geographical expansion and even the new branches that these private banks are opening at a very high rate and a lot of this credit generally gets originated from the branches.

It is not driven from, say, head offices or the main centres. It is mainly the branch driven and that is enabling these banks to report healthy numbers when it comes to the retail and the rural credit that they are delivering and going forward, I think that as that continues to gain traction, we are looking at continued branch expansion at a much higher rate than what we have seen in the prior years by almost all the top private banks, I think that will be one of the key driver of credit on that piece.

On the corporate, I think growth overall may still remain controlled. We are still looking at moderate pickup in capex and probably as you go forward in FY25 post the general elections, you can see some more activity there and which is why we are still looking at a credit growth lower than what it was in FY23.