Weak corporate loan growth plague India's private banks

Will the expansion to rural areas help?.

It has been noted that India's private banks have managed NIMs relatively well but weak corporate loan/fee growth dragged PPOP growth.

According to a research note from Nomura, with improvement in corporate activity expected, it looks for PPOP growth to improve from ~10-12% to ~20% by FY16F.

Nomura noted that it already sees some signs of PPOP improvement in 2QFY15. Longer term, the weak capital position of PSU banks is likely to lead to higher share gains for private banks.

Here's more from Nomura:

Cyclically, we believe PPOP growth is bottoming along with corporate credit growth. We expect core PPOP growth to improve to ~20% in FY17F from 15% in FY15F as core fee growth should revive with corporate loan growth in FY16F.

Even in 2QFY15, we saw some inch up in corporate loan and core fee growth for private banks (except for ICICI) leading to better PPOP growth. We expect this impact to be more pronounced in FY16F.

Structurally, private banks should continue to gain market share as PSU banks are likely to be capital-constrained.

Except for SBI/BOB/PNB, most PSU banks require 30-100% dilution over next 4-5 years and that is likely to slow their balance sheet growth.

As well, with regards to low cost deposits, as private banks expand more in rural areas, they should continue to gain CASA market share. With corporate credit growth set to improve from low levels, we believe corporate private banks will gain more given the capital constraints for PSU banks.