Banks: Sector Credit Trends - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

Banks' non-food credit growth hit a 45-month low of 4.9% YoY in Mar'21, due to a reduction in service credit growth, partly offset by growth in agriculture and personal loans. Industry credit off take remains elusive (0.4% YoY), as large industries segment continues to de-grow (-0.8% YoY). While the second wave of pandemic may cause short-term disruption in credit off take, we expect recovery in credit growth over the medium term for our coverage universe.

Industrial credit growth remained muted (0.4% YoY in Mar'21), although registering positive YoY growth for the first time since September. The large industrial credit, which constitutes ~82% of industrial credit, continued to de-grow at -0.8% YoY as the Capex cycle still remains elusive. Growth in credit to medium industries continued to surge, reaching 28.8% YoY (21% in Feb), aided by disbursals under the ECLGS. However, micro and small industries continued to grow slowly at just 0.5% YoY (1.5% in Feb). Within industrial credit, credit for roads (~22% of infra credit) increased by 34.4% YoY (15.6% in Feb). Credit to the textile sector continued to dip -0.9% MoM, although YoY growth stood at ~4.6%. Certain segments such as metals, all engineering, telecom and construction saw persistent YoY de-growth.

Service sector credit growth decelerated significantly, reaching 1.4% YoY ( -1.1% MoM) in March 2021, after having improved to 9.3% YoY in February 2021. Within this segment, growth in credit to NBFCs increased to 4.5% YoY while growth in credit for 'other services' de-grew -6.7% YoY (up 28.7% YoY in February). Overall, trade credit growth improved to 11.8% YoY (8.6% in February). Wholesale and retail trade credit growth improved to 21.2% YoY and 3.3% YoY respectively.

The personal loan segment continued to witness improvement in growth to 10.2% YoY (9.6% in February), after hitting a 10-year low of 9.1% YoY in January. This trend was led by growth in home loans (9.1% YoY) and other personal loans (16.8% YoY). Growth in credit card receivables improved to 7.8% YoY. Vehicle loan growth continued to move closer to October 20 levels, reaching 9.5% YoY. Personal loan has been the most significantly impacted segment by COVID-19.

Agricultural credit growth continued to accelerate, reaching 12.3% YoY (highest in 53 months), boosted by back-to-back surplus monsoon seasons.

Source : Equity Bulls

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