Indian banks face further credit slump in Q2

Scheduled commercial banks saw weaker credit growth at 5.9%.

Indian banks suffered further credit losses in March up until early June, exacerbated by a strained economic environment on top of the pandemic, according to a CARE Ratings report.

Scheduled commercial banks (SCB)s, which had endured muted credit growth during H1 2019-2020, saw their credit growth weakening further to 5.9% in March and remained muted up until early June. Credit growth of public sector banks (PSBs) decayed to 3% YoY from 9.6% in March 2019. On the other hand, private sector banks (PVBs) reported double digit credit growth of 11.3%.

A strong but sluggish retail credit growth across bank groups, coupled with decelerating wholesale credit growth and the tapering off of the corporate sectors’ credit offtake, contributed to the credit losses of SCBs.

SCB deposit growth improved to 8.6% in March from 9.9% a year before. Deposit growth in both PSBs and PVBs outpaced their credit growth, although deposit growth in PSBs was comparatively slower at 6.9% YoY vs. 11.1% for PVBs.

Growth in net interest income dropped to 13% as compared to 16.5% in March 2019. The weak credit growth subdued public banks’ profits, whilst foreign banks showed better profitability.

The return on assets of public banks are still negative at -0.2% versus 0.7% of private banks as of March, whilst the ROA of scheduled banks stood at 0.2%.