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Incremental credit share assessment equally pertinent – Interesting insights

Business updates from banks depicting acceleration in advance growth momentum is encouraging, and the tendency is to compare the quarterly outperformance or underperformance. However, what becomes equally relevant while assessing bank-specific growth is their respective incremental growth and market share gain. In this report, we have put forth equal focus on incremental market share of banks in FY22 (YTD) during covid pandemic (FY20-9MFY22) and compared it to their outstanding market share over the past years. Cumulative assessment over 4-8 quarters takes away quarterly volatility from the analysis and reflects a better picture, in our view. HDFC Bank commands >25% market share in incremental advance growth (3x of outstanding market share in FY18). Likewise, Axis Bank too enjoyed 8-9% incremental growth market share (vs <5% FY18 outstanding share). Less talked about and much under-appreciated bank, when it comes to growth, seems to be Federal Bank with 2.0-2.5% incremental market share against FY18 outstanding share of 1.1%. On the deposit front, HDFC Bank and SBI are further consolidating their leadership positions.

* Incremental growth and market share gain assessment is equally relevant along with sequential growth momentum

HDFC Bank, in the past 4-8 quarters, has commanded more than 25% market share in incremental credit growth compared to ~8% outstanding market share in FY18. It has, thereby, scaled up its market share by 250bps to >11.5% by Dec’21. Likewise, Axis Bank, though seemed to have lagged peers due to the recent lagging growth effect (of past two quarters), has enjoyed 8-9% market share in incremental growth compared to 7% market share in past three quarters compared to cumulative 3% share during the pandemic period (FY20- 9MFY22) and outstanding share of 2.1% in FY18. AU Small Finance Bank’s franchise scale is clearly reflected in incremental market share of 1.4-1.5% over the past 4-8 quarters compared to 0.2% outstanding share in FY18.

Less talked about and under-appreciated bank when it comes to growth is Federal Bank, wherein incremental market share is as high as 2.0-2.5% over the past 4-8 quarters compared to 1.1% outstanding share in FY18.

SBI has broadly sustained its market share in incremental growth, while other PSU banks have lost it in favour of private banks. As is known, YES and RBL have lagged peers over the past two years during their consolidation phase. IndusInd Bank, albeit slow in FY20/FY21, is now gathering some momentum.

* Deposit share assessment places HDFC Bank and SBI favourably; IndusInd, RBL, YES, IDFC FIRST, Equitas SFB and AU SFB scaling, strengthening and stabilising franchise

Correspondingly, similar assessment suggests HDFC Bank (13% incremental growth share in the past 4-8 quarters vs 6.7% share in outstanding deposits in FY18) and SBI (27% versus 23%) are consolidating their leadership positions on the deposit front as well. Kotak, having invested and built scale, has moderated growth to incremental share of mere 1.4% (from outstanding share of 1.6%).

Focus on scaling up, strengthening or stabilising liability franchise for IndusInd, RBL, YES, IDFC FIRST, Equitas SFB and AU SFB is reflected in more than double incremental share over the past few quarters to outstanding as of FY18.

* Business update reflects advanced growth gained momentum sequentially

Bank credit was up 3.3% QoQ and financiers in their business update have disclosed 3-8% QoQ loan growth. Growth was led by retail and commercial banking. Regaining momentum in Q3FY22, overall non-food credit growth is up more than 7% YoY to Rs110trn.

Amongst players, AU SFB (up 11% QoQ), Bandhan Bank (up 9% QoQ), Bajaj Finance (up 8.6% QoQ), HDFC Bank and Federal Bank (up 5% QoQ) witnessed relatively better traction. IDFC FIRST Bank (4% QoQ) and RBL (3.5%) have broadly sustained momentum. IndusInd (up 3%) and YES Bank (up 2%) lagged peers. Deposit traction QoQ for leading lenders has moderated a tad to 2-4% QoQ as overall industry-wide growth was 1.7% QoQ (9.6% YoY). As credit growth has outpaced deposit growth, the CD ratio has expanded by 100-300bps.

* Bank credit gradually gathering pace; industry credit still lagging

Industry credit was up for the third consecutive month on MoM basis (till Nov’21) though it was still down 1.0% YTD-FY22. We believe traction in corporate credit growth triggered by utilisation of sanctioned limits and the much-awaited capex cycle is a must for visibility on double-digit credit growth.

Medium corporate credit continued to see traction, up 2.1% MoM / 48.7% YoY / 35% YTD. At the same time, MSE (micro & small enterprises) is up 1.6% MoM / 12.7% YoY / 7% YTD. Reclassification of MSE into medium corporate based on turnover conditionalities has led to re-grouping. Cumulatively, the MSME segment has grown 1.7% MoM / 21.8% YoY / 14.3% YTD.

Lending to NBFCs has picked up strongly with 4.2% MoM accretion, and lending to commercial real estate was also up 2.6% MoM. Lending to HFCs was up 21.5% YoY.

Retail credit has been growing in double digits since Apr’21 and was up 11.6% YoY / 4.9% YTD. Credit card saw retracement with 4.8% YTD growth, and as and when activity levels revive, we expect this segment to witness the quickest recovery. Home loan growth still lagged other retail products; it was up 8% YoY and is now up 2.2% YTD vs overall 4.9% YTD growth in the retail segment. Momentum continued in personal loans with 19.2% YoY growth.

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