banking sector: Concentrate on banks with exceptional deposit growth: Aditya Shah


“I believe that in the entire 2023, the well capitalised banks would keep pushing the loan growth into the system. I do not see a challenge on the loan growth side of it,” says Aditya Shah, JST Investments.

What is your overall sense of the banking sector, the kind of numbers that we have seen for the third quarter, is the sector looking healthy enough for further growth or do you see any red flags right now?
It has been a fantastic credit growth for the entire sector. We have already seen the RBI say that the system loan growth is at about 18% and the system deposit growth is at about 10% which is really lagging the credit growth that is a little bit of a concern.

However, the loan growth continues to remain robust according to the RBI at about 15%.

So, I believe that the entire 2023 the well capitalised banks would keep pushing the loan growth into the system. I do not see a challenge on the loan growth side of it. On the deposit side of it, as the deposit rates continue to move up a little bit of money will start flowing back into the deposits as it had flown out because the deposit growth rates were really-really low.

So overall I am positive on the banking sector in 2023. This is the start of an up cycle which could last this year before we start to see the NPA shoot back again into the bank books. However, for this year I feel the loan growth can be very strong and the banks where the deposit growth has been exceptional those are the banks that you need to really concentrate on.

But yes, we have been speaking so much about credit growth for our banks and we need that because the country is trying to brave all the global economic headwinds and seize growth opportunities in several sectors, of course, and we are talking about the PLI scheme, for example, being extended to several sectors, all of which is going to require credit growth from our banks. From a corporate perspective right now, how do you think we are poised; does India have access to enough and ready bank funds to make the kind of investments they need for their capex?
Definitely. See, the basic difference between 2000s and now is that India’s top three banks, which is

, now and even have got very clean balance sheets. Once they have got very clean balance sheets, they will be able to push credit growth into the system. The credit is the backbone of economic growth in any country. We have seen in China in their 2000s credit was crazily pushed into the economy. So credit is now readily available, all banks are really well capitalised, even those who are not well capitalised will be able to find capital to push credit into the system, no problem as such. In fact, I believe that ICICI Bank is coming out of its problems and it is ready to push credit into the system. It is a major, major plus point for the Indian economy because three very important banks can push about 10% to 15% credit growth into the system over the next three-four years. We will find that India will be able to march on towards its $5 trillion dream. I think that it is just a matter of time now. Very strong banks will lead to a good economy and a growing economy in the next two to three years.

Pull factor should come from rising capex and that is something that you seem pretty positive about. But also you have mentioned asset quality, so are you concerned about the quality of private investments that are being made right now, where is that fear that you sense that you say that 2023 will be okay but the NPA picture may not be as rosy as it is currently?
On the NPA side of it, the banks have spent a lot of time from 2018 to about 2021 or 2022 to clean up their balance sheets. Now what the banks are really doing, this is the credit push phase where banks will push credit into the system and the NPAs will come out.

So right now, at this stage, we are in a very early stage of a credit cycle and where the credit quality is not a problem right now, all the focus is on the loan growth and that is why I have deciphered this that loan growth is no longer a good parameter to look at because every bank out there is growing at about 20%.

Deposit growth is one thing where we have seen banks like HDFC Bank grow their deposit at 20% which is fantastic. So right now, do not look at the NPA numbers, most banks will report a reduction in their NPAs, just look at the deposit numbers and see which are the banks which are getting stronger deposits even without raising interest rates too much. If you look at that, then you have to see shortage towards three banks and that is where you need to look at. However, I am not really worried about the asset quality as of now, six months down the line, eight months down the line that is something that we will have to study more deeply.



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