Loan Growth Analysis
HDFC Bank saw its retail loans increase by 7.4% year-on-year, reaching Rs 15,55,400 crore, with a quarter-on-quarter growth of 2.2%. ICICI Bank’s retail loans grew
by 6.6% year-on-year, amounting to Rs 739,384 crore, and 2.6% quarter-on-quarter. HDFC Bank's MD & CEO, Sashidhar Jagdishan, emphasized maintaining strict underwriting discipline, avoiding any dilution of credit standards to capture market share in unsecured loans. They are also being cautious with credit cards, particularly in increasing credit lines for those who revolve their balances and restricting spending in certain categories. Both banks exhibited growth, however, the approach was markedly different, reflecting a careful strategy focused on long-term sustainability and risk management.
Credit Card Caution
HDFC Bank, specifically, showed considerable prudence regarding credit cards. The bank chose to be 'circumspect on increasing credit lines for revolvers', which means they're carefully evaluating how much credit they extend to customers who frequently carry a balance on their cards. Moreover, HDFC restricted specific spending categories, particularly large e-commerce transactions during the festive season. This move indicates a proactive strategy to mitigate potential risks associated with high-volume, often promotional, spending patterns. This approach aligns with their broader goal of maintaining credit quality and avoiding overexposure to unsecured lending risks.
ICICI Bank's Strategy
ICICI Bank's strategy focuses on risk-calibrated, profitable, and sustainable growth, as stated by the management. They highlighted that the bank has taken corrective actions in the unsecured segments between 2020 and 2023, which have strengthened the portfolio's performance. This has allowed for measured disbursements in the present period. Retail loans at ICICI Bank make up 52.1% of the total book. The focus on mortgages is evident, which grew 9.9%. They also noted a rise in credit card outstandings by 6.4%. This approach shows that the bank has a clear strategy, with actions that aim for quality and sustainable expansion within the retail sector.
Rate and Market Share
In the home loan segment, HDFC Bank opted 'not to go down the interest rate ladder' despite the presence of competitive pricing. Their management stated that the bank prioritizes returns over chasing market share. This strategic decision showcases a risk-averse approach, indicating a willingness to maintain profitability even if it means potentially losing some market share. This approach to interest rates highlights a balance between competitive positioning and the financial health of their business operations. ICICI Bank, although showing growth in retail loans, also focused on the quality and sustainability of that growth, making similar choices about the rates.
Market Outlook
Both banks share a positive outlook on growth within the retail sector. They are cautiously optimistic, which reflects a nuanced understanding of the economic environment and the risks involved in lending. The sequential growth picked up in Q2 across retail segments, showing that the banks are strategically positioned to capitalize on opportunities while carefully managing their risk exposure. The observed growth demonstrates strategic choices focused on long-term stability and sustained expansion in the retail loan market, despite the changing dynamics.
