Q1 bank loan growth fell 1.2% due to low interest income: Report

Mumbai: Broking firm Centrum has said overall loan growth for banks in the first quarter ending June dropped 1.2 per cent quarter-on-quarter (QoQ) led by modest net interest income (NII) and a sharp drop in pre-provision operating profits (PPoP), mainly on account of state-run State Bank of India (SBI).

The Centrum report also said that banks` overall provisions dropped and profits rose for April-June quarter.

For banks considered by Centrum, QoQ NII growth was modest at 0.8 per cent. This, coupled with sharp QoQ drop in non-interest income, led to a PPOP decline of 9.1 per cent QoQ. Overall provisions costs, however, dropped 32.3 per cent QoQ, mainly due to SBI and ICICI Bank and net profit, thus, rose 59.3 per cent QoQ.

For asset financiers (AFCs), the report says there was a higher Assets under Management (AuM) growth at 20 per cent year-on-year (YoY) though PPoP was in line.

Asset quality for both saw a slight drop, mainly led by Mahindra & Mahindra Financial Services (MMFS), thus impacting overall profit after tax (PAT).

Micro lenders saw a higher AuM growth led by Ujjivan (+51 per cent YoY) and asset growth for both was mainly led by customer accretion.

The report also said revenues for rating agencies were impacted by lower volumes for bank loan ratings and muted money market activity (bonds and CPs).

Also, incremental capex is mainly happening only in larger public sector companies which offer thinner margins for rating agencies).

On banks, Centrum said: "Among our large-cap banks (SBI, ICICI, Axis), SBI saw a 2.3 per cent QoQ drop in loan growth while ICICI and Axis saw sluggish QoQ growth of 1.0 per cent and 0.5 per cent, respectively. NII growth was largely in-line with our estimates.

"Slippages rose for Axis and SBI (though SBI management pointed to some large slippages being one-off in nature), but dropped for ICICI. Overall provisions costs dropped materially QoQ for SBI and ICICI and thus combined PAT for the large-cap banks rose 69 per cent QoQ", it said.

Centrum-surveyed mid-cap banks saw a lower loan growth (+15.3 per cent YoY versus estimated 20.4 per cent), while Federal Bank and Karnataka Bank (KBL) were the main drivers.

Credit growth guidance has been revised lower across some players. Net Interest margin (NIM) was largely in line barring KBL (2.95 per cent versus the estimated 2.84 per cent) due to a favourable shift in loan mix.

On asset quality, DCB Bank, City Union Bank (CUBK) and KBL saw some slippage blips i though KBL saw lower gross non-performing assets (GNPAs or bad loans) and provisions due to higher write-offs. Net profit was largely in line except for KBL which saw a tax write-back due to higher write-offs.

On asset financiers and micro lenders, the brokerage said that despite an auto slowdown, AuM growth was slightly higher at 20 per cent versus an estimated 18 per cent as MMFS saw slower repayments and while Sundaram saw higher disbursements.

Asset growth commentary remains cautious as MMFS revised its AuM growth guidance to 15 per cent for FY20 against over 20 per cent earlier, while Sundaram too indicated a demand slowdown. NII/NIM for them at Rs 1,560 crore and 6.4 per cent, respectively was in line leading to an expected PPoP at Rs 1,010 crore.

Asset quality for both was marred mainly on account of MMFS (as Q1 usually sees higher slippages) although it alluded to stress for FY20 being fully provided for.

Net profit for Sundaram was exactly in line at Rs 160 crore though MMFS saw a sharp decline due to higher provisions. Micro lenders in the report saw a higher AuM growth at over 38.4 mper cent YoY led by Ujjivan that saw its JLG portfolio mainly contributing to growth.

Micro-finance instiutions (MFI) loan growth for both Ujjivan and Satin was mainly led by customer acquisitions. PPoP was higher led by Ujjivan on the back of loan processing fees.

On the rating agencies, Centrum said moderation in bank loan ratings and also muted activity on the money market front (bonds and CP issuances) impacted volume growth and revenue.

"We saw our coverage universe (CARE and CRISIL combined) reporting 7.3 per cent / 33.3 per cent / 51.3 per cent QoQ drop in revenues / EBITDA / APAT. A likely prolonged road to resolution of the NBFC crisis (impacting volumes), and a risk aversion in the market in general is likely to constrain the near-term revenue growth in rating agencies", it said.