avoided the worst of the initial shock waves from the global credit
turmoil, fears persist they face rising loan defaults and a
liquidity crunch which will impact full-year
results.
But for the first half of the current fiscal year, analysts’
gloomy forecasts have been beaten with five of the country’s
largest banks all posting increases in half year profits (see
table).
Go deeper with GlobalData
In particular, Bank of India’s profits in the first half are up
by almost 80 percent while HDFC Bank posted profits up by more than
40 percent.
Even ICICI, which endured a miserable second quarter amid
ill-founded investor concerns about its exposure to the financial
crisis, posted an increase for the first half of 3.2 percent
(see RBI 601).
Good news may, however, be in short supply in the second half of
the year. While state-owned Bank of Baroda notably bucked the trend
of rising bad loans during the second quarter, reducing its gross
nonperforming loans to 1.6 percent from 1.9 percent at the end of
the first quarter, it has more than doubled its provisions for
losses compared with last year.
And while ICICI beat profit forecasts, it has now decided to go
slow on lending. At the start of the year, it talked of
double-digit growth in retail loans: revised loan growth forecasts
are closer to 5 percent.
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By GlobalDataIn the three fiscal years to 2008, Indian banks’ lending grew at
annual rates of almost 30 percent, a figure which has reduced to
about 25 percent, but still in excess of the central bank’s target
rate of 20 percent.
The star performer in the year to date is undoubtedly HDFC Bank.
In the second quarter, it reported net profit up 44 percent while
its retail profit for the year to date has almost trebled.
By the end of October, its market capitalisation matched and, on
a number of days, exceeded that of ICICI.
But HDFC executive director Paresh Sukthankar said seven-year
high interest rates and a likelihood of an economic slowdown could
dent its rapid pace of loan growth. Its loan growth in the second
quarter remained well ahead of the industry average at 40 percent,
but down by almost half from its 79 percent increase in loan growth
in the first quarter.
According to Sukthankar, the bank’s nonperforming assets (NPAs)
had increased to 1.6 percent of loans, up from 1.4 percent, as a
result of its $2.6 billion merger with Centurion Bank of Punjab in
the first half of the year (see RBI 587).
Rising NPAs across the industry have forced banks to reconsider
their efforts to grow their credit cards portfolios, with a number
suspending efforts to seek new customers – in sharp contrast to
average annual card growth of 30 percent in each of the past four
years.
The percentage of credit card NPAs in Indian banks’ credit card
portfolios has almost tripled, going up from 5 percent to 8 percent
in fiscal 2008 to 15 to 20 percent in the current fiscal
year.
