Consumer, rural loans pump up mid-sized lenders’ earnings in Q1

Mid-sized lenders reported strong earnings growth in the June quarter as consumer and rural demand boosted loans growth which bankers said could continue in the remaining quarters dispelling doubts whether the momentum is for real.

Bajaj Finance, RBL Bank and Kotak Mahindra — all reported a strong operating performance with net earnings climbing at least 12 per cent, but the quarter was marred by provisioning for bond losses and delinquencies in SME loans at Kotak Mahindra.

Loans to consumer durables and mortgages would be the drivers of growth in the next few quarters on rising income for government staff due to salary hikes and a likely rise in farm income due to good monsoon.

“We are seeing an improving macro and it will reflect in the coming quarters,” said Rajiv Jain, MD, Bajaj Finance. “We expect mortgages to grow in the third quarter more in line with Bajaj Finance’s growth.”

While the mainline lenders like SBI and ICICI Bank struggle to come out of the bad loans morass due to their lending to infrastructure projects, smaller ones like Kotak Mahindra Bank, RBL Bank and Bajaj Finance, which are consumer oriented and give working capital loans, are faring better.

RBL Bank posted a 35 per cent rise in net profit, while Kotak Mahindra said earnings climbed 12.3 per cent to Rs 1,025 crore. For Bajaj Finance, it was a bumper quarter with 83 per cent rise to Rs 834 crore. For Kotak, provisions surged 130.5 per cent to Rs 469.63 crore.

“At the micro-level we are seeing some concerns on the SME side and the provisions on that book is looking up,” said Dipak Gupta, joint-MD, Kotak Mahindra Bank.

While SMEs may be a pain point for selective institutions in some clusters, overall growth may remain strong with consumer demand showing no sign of let up.

“We expect to grow in the 30 per cent to 35 per cent range in the rest of the fiscal,’’ said Vishwavir Ahuja, chief executive at RBL Bank. “Loans will grow at the lower end of this band and profits will grow at the higher end.”

Although there is a strong momentum from consumers, some macro factors like rising interest may begin to pinch people at the margins. The RBI may raise rates for the second time in less than three months when it reviews monetary policy next month as inflationary pressures mount.

“The interest rate upturn is cyclical and if demonetisation had not happened, the interest rate rise would have happened last year,” said Rajiv Jain of Bajaj Finance. “For the next two years we will see interest rate rise given the stronger macro which is inflationary. We would see 2-3 increase by RBI. Apart from crude, GST is also inflationary.”