Banking Sector Credit Trends - Growth continues to moderate - HDFC Securities

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities

The downtrend in non-food credit growth persisted, unsurprisingly, with YoY growth reaching 5.6%, the slowest in a little over 3 years. This trend was led by a de-growth in industrial credit and sluggish personal loan and service credit growth.

We expect non-food credit growth to remain range bound in the near term, as an uptick in disbursals will continue to be met by a corresponding rise in repayments, which have increased significantly, as suggested by 2QFY21 commentary.

Industrial credit de-grew (-1.7% YoY) for the first time in 3 years, and this trend was led by large industrial credit, which de-grew ~2.9% YoY. On a YTD basis, overall/ large industrial credit de-grew 5.7/6.7%. Aided by disbursals under the MSME credit guarantee scheme, growth in credit to medium industries, continued to accelerate, reaching 16.7%, even as MoM growth slowed from 11.9% in September to 2.4%. Within industrial credit, sectors such as gems and jewelry, glass and glassware and all engineering including electronics saw persistent YoY de-growth, together, these constitute ~18.4% of industrial credit. Infrastructure, which constitutes 36.5% of industrial credit, de-grew 2% YoY, 1.6% MoM and 5.2% YTD. Credit to the power sector, which accounts for 55.3% of infrastructure credit, de-grew 1.3% YoY. After growing rapidly between February 2019 and June 2020, credit to the telecom sector de-grew 20.8% YoY, 12.1% MoM and 29.8% YTD.

Service sector credit growth accelerated slightly from 9.1% in September to 9.5% in October. A major driver of this trend was growth in trade credit, which reached 14% YoY, vs. 11.5% in September, with growth in both wholesale and retail trade credit accelerating. The NBFC and CRE sectors, which constitute 30.2% and 8.9% of overall service sector credit saw slowing credit growth, with YoY growth in credit to the sectors reaching 9.2% and 3.5% respectively.

Personal loan growth, which has (arguably) been impacted the greatest by COVID-19, continues to witness relatively sluggish growth. YoY growth came in at 9.3%, with growth in credit card debt slowing to 4.9% (consistently from the recent peak of 7.9% in July). Growth in home and auto loans languished at 8.2% and 8.4% respectively.

Agricultural credit growth continued to accelerate, reaching 7.4% YoY.

Source : Equity Bulls

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