ICICI Bank Ltd and Axis Bank Ltd, two of India’s top private-sector lenders, are betting on a pick-up in loan demand after the general election ends next month, as big companies revive investment plans.
The two banks, which beat quarterly net profit estimates helped by a surge in retail loan demand and higher fee income, also expect pressure on asset quality to ease slightly in the current fiscal year that began on April 1.
Narendra Modi is favourite to become prime minister for the Bharatiya Janata Party (BJP), which has a strong lead in opinion polls.
He has promised to be a business-friendly leader, and investors hope a stable federal government led by Modi will help ease uncertainty and improve corporate outlook in an economy facing its worst slowdown since the 1980s.
“We know projects have been stuck. And in an uncertain environment there haven’t been any new project announcements for a very long time. So, we haven’t seen a demand pick up, neither on infrastructure nor even in the broader corporate loan market so far,” Axis Bank Chief Executive Shikha Sharma said on Friday.
“The expectation is that when the uncertainty of the elections is behind us, then maybe risk appetite will come back and people will start to invest. That’s when you would expect to see any pick up in demand,” she said. “As far as the economic cycle is concerned, we think the worst should be behind us.”
Axis, India’s third-largest private-sector bank by assets, posted a forecast-beating 18.5 percent rise in its fiscal fourth-quarter net profit, while top private-sector bank ICICI also beat expectations with a 15 percent rise in profit.
The banks said their loan books would grow at a slightly faster pace than the projected 15-16 percent credit growth in the banking sector this fiscal year, joining their rival HDFC Bank Ltd in giving a positive outlook.
“If investment in sectors like infrastructure comes back it would be positive for banks,” said Jagannadham Thunuguntla, chief strategist at SMC Global Securities. “It’s a matter of revival in corporate sentiment and how sustainable it would be. That would depend on policy decisions by the new government.”
Indian banks have recorded a slowdown in earnings growth and a surge in bad loans in the past year, as a large number of companies struggled in the slowing economy. Many big infrastructure projects have also stalled.
Some banks shifted focus from corporate lending to consumer credit, which is mostly secured against borrowers’ assets, to avoid a rise in bad loans. The sector’s non-performing loans as a percentage of total assets rose to about 4 percent last year from a low of 2.3 percent in 2011, according to Moody’s.
The sector stock index has, however, risen nearly a third since February, as hopes of a rebound in economic growth, although moderate, brightened the outlook for credit demand in Asia’s third-largest economy.
The latest Reuters poll of over 20 analysts this week showed the Indian economy likely grew 4.7 percent in the fiscal year that ended this March, with growth seen picking continued…