Mumbai: 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. Opposition leader Narendra Modi is favourite to become prime minister for the Hindu nationalist 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 per cent 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 per cent credit growth in the banking sector this fiscal year, joining their rival HDFC Bank Ltd (HDBK.NS) 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." ICICI's net profit in the quarter ended March rose to 26.52 billion rupees ($434.36 million) from 23.04 billion rupees a year earlier. This was higher than the 25.5 billion rupees average estimate of analysts polled by Thomson Reuters.
Its loan book grew an annual 17 per cent to 3.4 trillion rupees as of end of March. Retail loans grew faster at 23 per cent. Net interest income, the difference between interest earned and paid, rose 14.6 percent to 43.57 billion rupees.
The bank's net non-performing loans ratio rose to 0.97 per cent during the quarter from 0.77 per cent a year in the same year-ago period. ICICI's Chief Executive Chanda Kochhar said the bank was at its peak of bad loans additions.
