Banks: Sector Credit Trends - Slowing, as expected - HDFC Securities

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities

Non-food credit growth slowed to 6% YoY, the slowest rate in the last three years. All segments saw lower YoY growth vs. July. We do not find this surprising as disbursals by banks are likely to have been muted while repayments have gradually improved.

We believe that a further reduction in non-food credit growth is inevitable. Muted disbursal trends and an increase in repayment rates from current levels after the completion of the moratorium is likely to limit growth.

Industrial credit growth slowed to 0.5% YoY, from 0.8% YoY in July, led by a reduction in large industrial credit growth. Large industrial credit grew 0.6% YoY, vs. 1.4% in July, but de-grew sharply on a MoM basis (-2% in August, and -2.6% in July). After persistent de-growth, credit for medium industries grew 2.8% YoY. This segment saw strong MoM growth in July and August at 6.6% and 5.3% respectively- indicative of disbursals under the MSME credit guarantee scheme. Within industrial credit, sectors such as textiles, gems and jewellery, glass and glassware and all engineering including electronics saw persistent YoY de-growth. Credit for vehicle, vehicle parts and transport equipment and construction saw accelerating growth. Infra credit growth was flattish, with slowing trends in telecom credit growth.

Service sector credit growth decelerated to 8.6%. Within this segment, growth in credit to seemingly precarious segments- NBFCs (+17.1% YoY, slowest since February 2018) and commercial real estate (+6.6% YoY, slowest since December 2018) slowed considerably. We believe this is on account of high bases. Trade credit accelerated (+12.5% YoY, highest since March 2019) with accelerating in wholesale (+19.9% YoY) and retail (+6.7% YoY) trade credit.

Personal loan growth has seen the most dramatic decline post the outbreak of COVID-19. Growth in this segment slowed to 10.6% YoY. Within this segment, credit card growth slowed slightly to 7.4% YoY from 7.9% in July. This sub-segment has seen the sharpest reduction in growth. Home loan growth too, slowed slightly 11.1% YoY from 12.3% YoY. Vehicle loans saw a slight acceleration in growth to 8.4% YoY, from 8.1% in July.

Agricultural credit growth slowed slightly to 4.9% YoY, from 5.4% in July.

Source : Equity Bulls

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