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November credit sectoral deployment: Non-food credit growth at 7.1% YoY

Bank credit sectoral deployment data for Nov’21 suggests MoM accretion with broadbased growth across sub-segments. Non-food credit at Rs110trn was up 0.3% MoM / 7.1% YoY / 1.7% YTD. Key trends include: 1) Industry credit is now up for the third consecutive month on MoM basis, though it is still down 1.0% YTD-FY22. Traction in corporate credit growth triggered by utilisation of sanctioned limits and the muchawaited capex cycle is a must for visibility on double-digit credit growth. 2) Medium corporate credit continues to see traction, up 2.1% MoM / 48.7% YoY / 35% YTD. 3) Lending to NBFCs picked up strongly with 4.2% MoM accretion and lending to commercial real estate was also up 2.6% MoM. 4) Lending to HFCs was up 4.6% MoM / 21.5% YoY while loans to public financial institutions grew 8% MoM. 5) Credit card after 6.6% MoM growth in Oct’21 saw some retracement wherein book was down 1.0% MoM. 6) Home loan growth still lags other retail products; it was up 0.3% MoM / 8% YoY and is now up 2.2% YTD vs overall 4.9% YTD growth in retail segment. 7) Momentum continued in other retail loans with growth of 2.5% MoM / 19.2% YoY.

We believe India Inc, after undergoing a phase of deleveraging over the past few years, is now better positioned to embark on the path of re-leveraging. Recovery in economic activity and derivative effect of increased investments and spending on consumption would likely sustain the momentum of >12% growth over FY22E-FY25E.

Key takeaways from monthly sectoral deployment data:

* Retail credit is sustaining double-digit growth: Retail credit has been growing in double digits since Apr’21. For Nov’21, it was up 1.0% MoM / 11.6% YoY and, with this, it is up 4,9% YTD. Vehicile and personal loans led the growth this month, while credit card outstanding was down 1.0% MoM. With normalisation visible in most sections of the economy, we believe retail credit growth is likely to sustain in the range of 10-12%.

* Home loan segment (constituting ~50% of retail loans) still lags growth compared to other retail products. It was up 0.3% MoM / 8.0% YoY and is now 2.2% YTD higher vs overall 4.9% YTD rise in the retail segment. Home loan growth is seasonally strong in H2, hence, the curve in coming months would be key to watch as driver of overall retail credit uptick.

* Credit card after 6.6% MoM growth in Oct'21 saw some retracement wherein book was down 1.0% MoM. With this, it is now up 4.8% YTD. In FY21, this segment experienced the quickest recovery as activity levels revived and a similar trend was seen post covid second wave too, over the past 3-4 months.

* Industry MoM credit up for third consecutive month: Industry, which comprises 29.2% of total non-food industry credit, is showing some signs of uptick with 0.4% MoM growth; now growing MoM for the third consecutive month albeit it is still down 1.0% YTD. Under-utilisation of existing sanction limits, modest demand outlook and rundown of exposure in a few sectors led to large industry credit consolidating at ~Rs28trn-29trn through the past 3 years. We believe revival in consumer demand and rise in government spending can be potential triggers for industry credit growth.

Key sectors deleveraging continuously include iron and steel, food processing, cement & cement products, glass & glassware. Infra (particularly roads and other infra), petrochemicals, fertiliser, chemical, have been gaining credit momentum. We believe industry growth will have to emerge as a key driver to boost credit expansion. It was up 0.4% MoM in Sep’21 followed by 0.9% in Oct’21 and 0.4% in Nov’21.

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