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Banks may post weak loan growth in Q2FY20; here are key reasons

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The banks are likely to post weak credit growth in the second quarter of the ongoing fiscal owing to challenges on the macroeconomic front, said a brokerage. With several NBFC downgrades and higher corporate slippages in the first half of the fiscal, the risks have increased over time, Reliance Securities said in a report. "Additionally, impact of marking down DTA to revised tax rates will dent FY20 earnings for several banks," the report added. However, the banks' margin will boost on account of sharp correction in wholesale deposit rates. Considering the scenario, the brokerage continues with its bet on ICICI Bank and HDFC Bank among large caps and Federal Bank and DCB Bank in mid-cap space.

In the second quarter of the ongoing fiscal, the demand for industries have remained weak on account of lack of private sector capital expenditure and challenging large project finalisation, the report added. "The overall growth outlook has impacted by slowdown in capex, NBFCs crisis and heavy rains. We expect the private capex to pick-up led by recent tax reduction and additional tax incentives for new manufacturing units," it added.

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Meanwhile, the first phase of 'Loan Mela', an outreach programme for providing credit to retail customers and MSMEs, will begin from Thursday across 250 districts across the country to meet demand during the festival period. During the four days beginning October 3, loans will be sanctioned for retail, agriculture, vehicle, home, MSME, education and personal categories on the spot. Finance Minister Nirmala Sitharaman announced loan melas last month to increase credit outreach to the retail and MSME borrowers.

All banks, including State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), and Corporation Bank have geared themselves up to take advantage of festival season demand. SBI is the lead banker in 48 districts across the country. Likewise, BoB is the lead banker in 17 out of 250 districts in the first phase.