Bank: Credit sector trends – Slowdown, again – HDFC Securities

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Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities.

Non-food credit growth hit a 41-month low at 5.6%, driven by a general slowdown in the growth of industrial and service credit and personal loans. However, individual pockets within the aforementioned segments and agricultural credit growth have shown signs of improvement. Over the medium term, we expect credit growth to pick up in our hedge banks, aided by improving economic conditions, and we continue to model credit growth of 6.3 / 12.2% in FY21 / 22-23E for the banks in our hedging universe.

Industrial credit experienced a persistent decline to -1.3% in January. This trend was likely driven by large industrial credit, which constitutes ~ 82% of industrial credit and declined 2.6% year-on-year (this segment however recorded ~ 50bps MoM growth). Micro and small industries experienced negligible growth at ~ 90 basis points yoy, while growth in credit to midsize industries continued to increase, reaching 19.1% yoy, (+ 3% yoy ). We believe that the growth of credit to medium-sized industries has been helped by disbursements under ECGLS. Within industrial credit, sectors such as infrastructure (led by telecoms), metals and all engineering experienced persistent year-on-year decline. Other segments such as textiles and gemstones and jewelry saw their growth trajectory improve.

Credit growth in the service sector continued to slow, reaching 8.4% yoy in January 2021, after reaching 9.5% in October 2020. Interestingly, within this segment, the growth of credit to NBFC reached 20.2% yoy, after falling to 7.8% yoy. in November. Credit growth to the CRE segment continued to slow, reaching 2.8% year-on-year. Overall trade credit growth improved to 15.7% year-on-year, with wholesale credit growth remaining strong at 25.7% year-on-year, while retail credit growth declined. reached 7.3% year-on-year.

The personal loans segment saw its growth slow to 9.1% yoy, the lowest in about 10 years (after growth resumed to 10% yoy in November). This trend was generalized with sluggish growth in mortgage loans (+ 7.7% yoy, the lowest in ~ 10 years) and credit card debt (+ 5.0% yoy). Growth in auto loans slowed slightly, reaching 7.1% year-on-year. This segment has been the most significantly impacted by COVID-19.

Agricultural credit growth accelerated further to 9.9% year-on-year, boosted by consecutive surplus monsoon seasons.

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