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Bank credit - July sectoral deployment: Vehicle, credit card, personal loan & mid-corporate segments drive growth

Bank credit sectoral deployment data for Jul’21 suggests credit growth, which gained momentum post covid second wave in June 2021, is showing further signs of improvement in pockets. Overall, credit growth is now down 0.6% YTD at Rs96.0trn (up 0.6% MoM and 5.8% YoY). Key trends include: 1) Agri and retail credit were the main drivers of non-food credit growth that was up 12.4% and 11.2%, YoY, respectively. 2) Vehicle loans momentum was upbeat in July with 12% MoM growth.

With festive season setting in, robust traction should continue. 3) Personal loans also saw strong momentum with 16% YoY growth. 4) Credit card portfolio jumped 8.3% MoM/10% YoY as relaxation of restrictions resulted in higher consumer spending. 5) With LTV benefit getting withdrawn, gold loans grew 5% YTD and were flat MoM in Jul’21.

6) Home loans have stayed put since Mar’21, neither declined in Apr/May, nor witnessed momentum build-up in June/July. 7) Large industry credit continues to drag (down 4% YTD/3% YoY) due to under-utilisation of sanction limits and run-down of exposure in few sectors. On the other hand, medium corporate credit book jumped 70% YoY / 20% YTD / 10% MoM to Rs1.63trn. 8) Aviation-related lending, within service segment, is up 18% YTD/21% YoY. Retail trade continues to remain flat YTD.

Key takeaways from monthly sectoral deployment data:

* Retail credit is sustaining double-digit growth – Retail credit, with relaxation in restrictions and gradual opening up, was up 2.6% MoM (highest in past 18 months)/11.2% YoY. This was primarily led by gained traction in vehicle loans, personal loans and credit cost.

* Vehicle loans momentum was upbeat in July with 12% MoM growth, regaining the lost ground over the past 3 months. With the onset of festive season, we expect robust traction to continue and loan book to build up pace.

* Unlike other retail product segments (that are down YTD), home loans have stayed put since Mar’21. Neither did they decline in the initial two months of this fiscal, nor was the momentum build-up witnessed in June/July. YoY growth, thereby, sustained at ~9%.

* With gradual easing of restrictions and increasing business activity, credit card portfolio saw robust growth of 8.3% MoM/10% YoY, though it is still down 4.5% YTD due to lower activity in Q1FY22. In FY21, this segment experienced the quickest recovery as activity levels revived. Credit card portfolio growth over the next few months would therefore be a key monitorable.

* Industry credit continues to be the weakest link dragging overall credit growth - Industry, which comprises 29.4% of total non-food credit, was down 1.5% MoM and 2.4% YTD. Under-utilisation of existing sanction limits, modest demand outlook and rundown of exposure in few sectors led to large industry credit consolidating ~Rs28trn for the past three years now.

* Key sectors that are deleveraging continuously include iron and steel, construction, cement, telecom and other infra. Roads, airports, ports, petrochemicals, rubber plastic and plastic products, textiles, glassware, paper products have been gaining credit momentum. We believe industry growth will have to emerge as a key driver to boost credit growth in coming years. While it may happen with some lag, revival in consumer demand and rise in government spending can be potential triggers.

* Bankers, PSBs in particular, extended full support to MSMEs resulting in medium corporate credit book jumping >70% YoY / 20% YTD / 10.5% MoM to Rs1.63trn.

* Since January 2021, there have been 8-10 new sub-segments disclosed in sector-wise deployment data (table 3). Among various portfolios, non-agri gold loan portfolio registered growth at 40% CAGR over the past 2 years and was up 77% YoY in Jul’21. This can largely be attributed to banks’ focus towards secured lending products and LTV relaxation for banks (up to 90% of gold value). However, with LTV benefit getting withdrawn post Mar’21, gold loans grew mere 5% YTD and were flat MoM in Jul’21.

* Other services (which include MFs, banking & finance other than NBFCs and MFs, and other services not indicated elsewhere under services) was flat MoM after a steep accretion of 10% MoM in Jun’21. Due to steep uptick in Jun’21, it is up 12% YTD.

* Loans to public financial institutions jumped 131% YoY / 1% MoM, while lending to HFCs has fallen 7% YoY / 2% MoM. This clearly shows banks’ lending preference is more towards public institutions than HFCs. Incrementally, after running down high risk assets, NBFCs are now pursuing growth opportunities in a risk-calibrated manner. Consequently, bank lending to NBFCs should stabilise in FY22E unlike the deceleration seen in the recent past.

* We believe India Inc, after undergoing a phase of deleveraging over the past few years, is now better positioned and confident to anvil on the path of re-leveraging. Indian financiers, too, have saddled themselves with ample liquidity / capital buffer to tap the emerging opportunity. Recovery in economic activity and derivative effect of increased investments and corporate / government spending on consumption will sustain the momentum of >15% growth over FY22E-FY25E.

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