Indian private banks bet on retail loans and foreign deposits

Lenders want to increase their share of high-yielding and predominantly retail loans, said S&P.

India’s private banks are leaning on retail loans in order to reverse the negative impact of their shrinking net interest margins (NIMs), said S&P Global Market Intelligence.

“The lenders have indicated that they want to increase their share of high-yielding, predominantly retail, loans and capitalize on the central bank's incentives on foreign currency deposits to reverse the downward trajectory of their NIMs,” S&P Global Market Intelligence said in a 20 July report.

Retail loans account for 52% of HDFC Bank’s portfolio. Axis Bank’s retail disbursements, meanwhile, have grown about 18% over the past three quarters.

Apart from loans, the banks see foreign currency deposits from non-resident Indians (NRIs) as a potential tailwind, with Kotak Mahindra Bank reportedly seeing strong demand for such deposits, S&P said.

“This provides a competitive source of funding and creates incremental loan growth opportunities as these funds are deployed,” ICICI Bank CFO Anindya Banerjee is quoted saying.

The banks expect a lag before benefits reflect in their liability books. ICICI Bank warned that these deposits could be cost-effective, reports S&P Global Market Intelligence.