Banks stay away from window-dressing to grow their books

This fiscal-end, banks have refrained from taking one-day deposit or one-day credit as they shift their focus from balance-sheet expansion to the management of bad debt.

While the non-performing assets (NPAs) are expected to be high, banks are expected to reap huge treasury gains as they will be able to write back depreciation on the investments and also book profits with the yields on the government securities falling by 0.30% in the quarter. According to the estimates by rating agency Icra, gross NPAs is likely to increase from Rs 4.5 lakh crore (6% as on December 31, 2015) to increase to Rs 4.8-5.3 lakh crore by March 2016.

The credit growth figures released by the Reserve Bank of India (RBI) on Wednesday showed that the credit growth for Indian banks during the fortnight ending March 18 showed a slight rise of just Rs 29,140 crore to Rs 72,77,650 crore, with most of the growth coming from the retail sector, and a tepid growth in the corporate book. The deposits during the fortnight ended March 18 also dipped by Rs 27,930 crore during this period.

A senior State Bank of India (SBI) official told dna, "Treasury income is expected to be very good this quarter. Investment gains and write-back from depreciation will boost our profitability. But the gains are largely going to be mitigated by the high provisions the bank will have to make for the bad loans that are expected to remain at the same levels as the preceding quarter."

Usually, the fourth quarter is the time when banks undertake a drive to build their balance-sheet by contracting one-day or short-term deposits and short-term credit, generally from their long-standing customers to boost their lending and deposit books. But this year, bankers from at least five banks said that balance-sheet was not their focus and so credit growth and deposit growth for the fourth quarter, which will be announced with a lag of a month, will reflect the right picture of the existing appetite for bank credit and deposit.

According to the RBI data on a year-to-date basis, about 44% of the incremental credit growth was driven by retail loans. Credit to small and medium enterprises declined 11% and credit to large industries grew at 7%, most of which, according to bankers, were working capital or short-term corporate credit by companies. Bigger banks such as the State Bank of India (SBI) also grew their books by refinance opportunities – that is taking over loans from other banks both in the corporate and retail loans.

Another banker said, "Our credit growth figure is lower than all previous years. We will start the new financial year on a clean slate. No ultra short-term deposits or credit have been contracted."

Religare Securities said in a note, "We do not see credit growth for 2015-16 improving beyond 12%. A mild uptick was seen in personal loans which grew by 19.2% over the previous year, largely driven by a 19% growth in housing loans. Large corporate loans were steady at 7% and advances against FDs grew sharply at 12.5% and vehicle loans declined to 12.3% over the previous year."

A senior private sector banker said, "The temptation to build balance-sheet by giving short-term loans and getting short-term deposits is absent this time. With the RBI strongly against these practices, most banks have shunned the bulk deposits that usually come from loyal customers."

The conversion of about Rs 1 lakh crore Uday bonds issued by the state governments on behalf of the state electricity boards (SEBs) will also shift some NPAs or stressed assets from the loan book to the investment book of banks. State governments of both Rajasthan and Uttar Pradesh have signed the agreement for converting their respective SEB loans into bonds. With yields set to fall further with the expectation of a rate cut by the Reserve Bank of India (RBI), there is a scramble from pension funds, insurance companies, mutual funds and new private sector banks such as Kotak Mahindra Bank to subscribe to these bonds.