Banking Sector Credit Trends - Weakness building - HDFC Securities

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities.

Banks (Sector Credit Trends) - Weakness building

Non-food credit growth slowed slightly to 6.8% YoY (vs. 7.3% in Apr-20). This was a result of a sustained slowdown in personal loan growth, which came in at 10.6% YoY (slowest in the last ~10 years). The personal loan segment has been impacted the greatest by COVID-19 (the segment registered a 17% YoY growth in Feb-20). Industrial (+1.7% YoY) and service credit (+11.2% YoY) growth figures were nearly identical to Apr-20's.

Current trends in the industrial and service segment are a consequence of higher working capital limit utilisation by businesses, and the moratorium, we believe. Non-food credit growth is likely to trend down gradually until the effect of the moratorium wears off. Post that, one can expect a more perceptible decline as we do not see any major uptick in credit demand.

Industrial credit grew at 1.7% YoY (1.7% in Apr-20 too), but credit to the segment saw a 0.8% MoM decline, after declining 0.7% MoM in Apr-20. The MoM trends appear to be in line with those seen in earlier years. Large industrial credit, saw YoY growth accelerate slightly to 2.8% vs. 2.7% in Apr-20. MoM trends in this segment largely mimicked those seen in overall industrial credit and expectedly so. Within industrial credit, petroleum, petroleum products and nuclear fuels saw strong YoY growth at 40.3% (vs. 48.8% in Apr-20) but MoM de-growth of 9.6%. After a phase of accelerating growth, chemical and chemical products saw YoY growth slow to 3.6% (vs. 8.8% in Apr-20). Sectors such as textiles, gems and jewelry etc. saw persistent de-growth.

Service sector credit growth too came in at 11.2% YoY (vs. 11.2% in Apr-20). MoM credit de-growth of 1.2% was in line with trends seen in earlier years. NBFC (+29%) and CRE (13.6%) saw relatively strong YoY growth, but a MoM decline. Trade credit growth (6.1% vs 7.5% in Apr-20) slowed, but was driven by accelerating growth in wholesale trade credit (11.4%).

Personal loans continued to see a significant slowdown, with YoY growth at 10.6% (vs. 15-17% growth seen in last several months). Home loan growth slowed to 12.9% YoY, while credit card debt dipped 80bps YoY (25-30% growth seen in last several months) and 4.2% MoM, after a ~10% MoM dip in Apr-20. Personal loan growth has been a major driver of non-food credit growth over FY20. The impact of COVID-19 on this segment is visible.

Agri credit growth slowed further to 3.5% YoY (vs. 3.9% YoY in Apr-20).

Source : Equity Bulls

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