Shrinking car and two-wheeler sales is now hurting India’s biggest private bank

• The shrinking of the auto loan book is the continuation of a long trend of weakness in India’s car and two wheeler industry.
• This is one of the reasons most analysts on the street expect the upcoming budget to provide some booster shot to the country’s automobile industry.
• Check out the latest budget news and updates on Business Insider.

The 18% growth in HDFC Bank’s net profit did not impress investors and the share price slipped a percent on Monday (Jan 17).

Shrinking retail loans was the primary reason for investor disappointment. Now, the lack of borrowers for cars and two wheelers in the last few months had a role to play, according to analysts at Emkay Global.

The lender’s retail portfolio, which includes personal loans, housing, vehicle, education loans and credit cards among others, has declined sharply since March 2021.

Why are HDFC Bank’s retail loans shrinking?

Passenger car sales in India have been falling for four months in a row since September. Two wheeler sales are at a decade low.

However, the recent declines are part of a much longer trend of weakness in India’s demand for automobiles that has persisted long before the pandemic hit.
If this is the case for the country’s largest private bank, this could be a factor to watch out for in the upcoming earnings from its peers like ICICI Bank, Kotak Mahindra Bank, IndusInd Bank and others.

These wider ramifications for the economy, due to the slump in India’s automobile sector, is one of the reasons why the upcoming budget is expected to provide some relief to India’s ailing car makers and two wheeler companies.

Analysts at Prabhudas Lilladher expect measures to boost consumption, especially for the two wheeler segment, by improving the rural economy, and by providing more clarity on execution of scrappage policy.

Fall in auto loans is not the only problem for HDFC Bank

Although HDFC Bank holds the largest pie of the Indian credit card business, it has witnessed gradual slowdown in its sales. This happened after RBI had banned the bank from selling new credit cards in December 2020 after certain incidents of outages.

As a result, the lender’s net interest income did not grow more than 4.1% in the last three quarters.

Adding to the woes, HDFC Bank has lost credit card market share since the RBI restrictions in December 2020. Currently, the bank’s market share is at 23% from 25.6% earlier, said Kotak Institutional Equities report .


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