Banking Sector Credit Trends Report - Growth slows, as expected - HDFC Securities

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

Non-food credit growth slowed further to 6.7% YoY (vs. 6.8% in May). We do not find this surprising, given the disruption to real economic activity resulting in muted credit demand and risk aversion at banks. This trend has been led by slowing service credit and personal loan growth, even as industrial credit growth accelerated slightly. Non-food credit growth can slow further, we believe, as COVID-19 continues to impact real economic activity, especially after the moratorium ends.

Industrial credit accelerated slightly to 2.2% YoY, from 1.7% in May, led by an increase in large industrial credit growth from 2.8% YoY to 3.7%. However, other segments of industrial credit (based on size) continued to see de-growth in outstanding credit. Credit to micro and small industries de-grew 3.7% YoY and that to medium industries de-grew 9% YoY. As a result, the stark difference in credit growth to these segments persisted. Within industrial credit, sectors such as textiles, gems and jewellery, leather and leather products, glass and glassware including all engineering saw persistent YoY de-growth of varying degrees. Infra-credit saw accelerating growth, led by faster growth in credit for roads and telecommunications.

Service sector credit growth slowed slightly to 10.7% YoY (vs. 11.2% in May). Growth in credit to NBFCs (+25.7% YoY), tourism, hotels and restaurants (+16.8% YoY) was relatively healthy but trending down. CRE credit growth slowed to 11.6% YoY, from 13.6% in May. Trade credit grew 6.1% YoY, led by 10.9% growth in wholesale trade credit, as retail trade credit grew 2.2% YoY.

Personal loans have seen the most dramatic slowdown in growth (relative to pre-COVID-19 levels and those seen in other loan segments). However, YoY growth in this segment slowed just 10bps to 10.5% (vs. May 20). Similar trends were seen in housing credit (+12.5% YoY) and other personal loans (+12.1%). After slowing dramatically and de-growing 80bps YoY in May, credit card debt grew 2.8% YoY, with MoM growth of 5.1%. We find this intriguing and in line with the commentary of various private sector banks.

Agri credit growth surprisingly slowed further to just 2.2% YoY, from 3.5% YoY in May. We find this surprising, given that the country has seen a good winter harvest and reasonably well distributed monsoon rainfall so far.

Source : Equity Bulls

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