Large-size private banks, including HDFC Bank, Axis Bank and Kotak Mahindra Bank, have seen a de-growth in their corporate loan book in Q2FY25, largely due to pricing issues and as lenders target higher yielding corporate bonds and other small and medium enterprises (SME) loans, senior bankers say.
“Yes, wholesale loans were down this quarter by 2.8 per cent (sequentially). The right kind of pricing is very important. We have seen that pricing has not kept pace with policy rates which have been raised by 250 basis points (bps),” said HDFC Bank CFO Srinivasan Vaidyanathan.
HDFC Bank’s corporate and other wholesale loans de-grew 3 per cent quarter-on-quarter (QoQ) and 12 per cent year-on-year (YoY) to ₹4.67 lakh crore. Likewise, Axis Bank’s corporate loans was slightly down around 0.1 per cent Q-o-Q at ₹2.90 lakh crore.Kotak Mahindra Bank’s corporate loans were down 1 per cent QoQ at ₹93,581 crore,whereas Karur Vysya Bank’s corporate loans were down 4 per cent QoQ and 9 per cent YoY at ₹13,088 crore.
Vaidyanathan said that at the overall banking sector level, only half of the policy rate hike is being passed on to top corporates. Legacy, “traditional” lenders are also offering lower interest rate loans to corporates, he said. For an AAA-rated corporate bond with a 1—or 2-year tenure, the spread rose by 17-30 basis points (bps) in Q2, whereas loan yield did not keep pace and travelled in the opposite direction due to tough competition.
Shanti Ekambaram, deputy MD at Kotak Mahindra Bank, said it is also important to consider corporate loans, credit substitutes--which include corporate bonds and commercial papers--and wholesale SME loans altogether rather than just taking into account wholesale loans.
While Kotak Bank’s corporate loan book moderated QoQ, the credit substitute segment rose 32 per cent YoY and 4 per cent QoQ to ₹30,956 crore in Q2. The bank’s SME loans grew 31 per cent YoY to ₹32,174 crore in Q2.
RBL Bank, which reported 2 per cent yearly and 1 per cent sequential moderation in corporates loans at ₹23,395 crore, is also targeting the SME segment. The bank’sMD and CEO R Subramaniakumar said the lender is targeting to generate higher fee income and interest income from SME loans. The lender, he said, is not keen to enter competitive segments.