Q1FY22 update: Are private sector banks getting a new bellwether?
Synopsis of Q1FY22 results of leading private sector banks:
Private sector banks go digital at the fore,
They place growth at core,
Asset quality gets a low score,
The stock prices selectively soar,
Investors wonder what’s in store,
Meanwhile, a new bellwether knocks on the door!
We have been noticing an interesting trend in the private sector banking space of late. Going merely by the stock price movement, it appears that the markets are favouring ICICI Bank over HDFC Bank.
Is ICICI Bank emerging as the new performance barometer for private sector banks? It’s too early to call it a ‘new normal’.
On this backdrop, let’s see how the leading private sector banks fared in Q1FY22. The early trends suggest that, the second wave of covid-19 hasn’t affected their performance as much as some experts anticipated earlier.
The domestic loan book of ICICI Bank expanded 19.6% Year-on-Year (Y-o-Y) in Q1FY22. The domestic corporate loan book grew 11.4% Y-o-Y while the growth in retail credit was 20.2%.
HDFC Bank witnessed a Y-o-Y growth of 14.4% in its overall loan book with a 9.3% increase in the retail loan book. Nonetheless, the commercial and rural portfolio and the other wholesale banking portfolio of HDFC Bank clocked a Y-o-Y growth of 25.1% and 10.2%, respectively.
HDFC Bank’s CASA deposits grew 28.1% Y-o-Y in Q1FY22 while total deposits saw an uptick of 13.2%. ICICI Bank outpaced HDFC Bank with 15.5% deposit growth Y-o-Y. Its Savings account deposits grew 21.7% while the current account deposits recorded a rise of 32.4%.
ICICI Bank witnessed impressive digital adoption trends amongst its customers. For instance, it approved 34% of mortgage loans (by volume) digitally through and through in Q1FY22 as against 19% in FY21. Similarly, 46% of personal loan disbursements (by volume) in Q1FY22 were entirely through the digital mode as against an average of 42% in FY21.
Kotak Mahindra Bank saw a similar trend in digital adoption. In Q1FY22, the share of digital in the personal loan portfolio went up to 45% from 34% in Q4FY21. What’s more, it sourced 94% of investment accounts through mobile and net banking.
In other words, technology is now allowing banks to handle even big-ticket loans, such as mortgages, through digital means. Greater digital adoption may allow banks to disburse loans faster, besides offering cost-savings.
According to Kotak Mahindra Bank, investors are increasingly using digital channels such as whatsapp and chatboats, etc, for resolution of their queries. In the second-wave-stricken quarter, Kotak Mahindra Bank reported a growth of 6.6% in advances and 9.5% growth in deposits. Current account deposits of Kotak Mahindra Bank rose 35.9% and savings bank account deposits increased 9.3% in Q1FY22.
Interestingly, Kotak Mahindra Bank has been acquiring nearly 5 lakh customers every month digitally. Robotic Process Automation (RPA) has delivered time savings in 23 processes, as reveled by the bank.
The loan portfolio of Axis Bank advanced 12% Y-o-Y and deposit base expanded 11%. CASA deposits grew faster at 19%. Axis Bank has been focusing on cross-selling opportunities using digital banking capabilities. The bank opened 18 lakh new liability accounts in Q1FY22.
The asset quality of Axis Bank came under pressure in Q1FY22 with fresh slippages rising to Rs 6,518 crore in Q1FY22 from Rs 5,285 crore in Q4FY21.
ICICI Bank added Rs 7,231 crore of gross NPAs in Q1FY22, against the gross addition of Rs 11,818 in Q4FY21. Nearly 94% belonged to retail and business banking segments. The bank has followed a more proactive and conservative stance in provisioning. It expects the pace of gross NPA additions to decelerate in Q2FY22 and decline substantially in the H2FY22.
Fee income of almost all leading private sector banks has grown impressively in Q1FY22. Burgeoning markets could be one reason but the role of improved digital capabilities of banks can’t be undermined.
For the mid-sized Federal Bank, Q1FY22 was an eventful quarter, with International Finance Corporation (IFC) picking up a 4.99% stake in its paid up capital. Moreover, the bank reported the best ever quarterly operating profit. At 19%, CASA growth remained healthy.
Q1FY22 results have set the tone for FY22.
Digital capabilities of leading private sector banks may help them stay ahead of the competition in the foreseeable future. Banks with a larger deposit base are likely to be more relevant.
Are we in for a lean H1 and exciting H2? Keep reading this space to get an answer!
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