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Uptick to sustain?

Non-food credit growth hit a 7-month high of 6.5%, led by an uptick in personal loan and service credit growth, and supported by sustained agricultural credit momentum. Trends in industrial credit remained uninspiring. We build a recovery in credit growth over the medium term across our coverage universe (12.2% over FY22-23E). However, rising COVID-19 infections may hamper the formation of necessary economic conditions for such growth.

* Industrial credit continued to de-grow at -0.2% in February (+0.2% MoM). However, the pace of de-growth has moderated. These trends were expectedly led by large industrial credit, which constitutes ~82% of industrial credit and which de-grew 1.5% YoY (compared to -2.5% in January). Micro and small industries also witnessed grew at just 1.5% YoY (0.9% in Jan). Growth in credit to medium industries continued to surge, reaching 21% YoY (19.1% in Jan), aided by disbursals under the ECLGS. Within industrial credit, credit for roads (~20% of infra credit) saw YoY growth surge to 15.6%. After witnessing a sharp jump in January, credit to the textile sector dipped 3.1% MoM, although YoY growth was relatively healthy at ~8%. Certain segments such as metals, all engineering and construction saw persistent YoY de-growth.

* Service sector credit growth improved, reaching 9.3% YoY in February 2021, after having dipped to 8.4% in January 2021. Within this segment, growth in credit to NBFCs increased to 9.2% YoY while growth in credit for ‘other services’ surged 28.7% YoY. Overall trade credit growth moderated to 8.6% YoY (slowest since July 20). Wholesale trade credit growth slowed to 15.4% YoY while retail trade credit growth reduced to 2.5% YoY.

* The personal loan segment saw growth improve slightly, to 9.6% YoY, after hitting a 10 year low of 9.1% YoY in January. This trend was led by growth in home loans (+8.5% YoY) and other personal loans (+16.4% YoY). Growth in credit card debt was sluggish at 4.8% YoY. Vehicle loan growth improved, close to October 20 levels, reaching 8.3% YoY. The personal loan segment has been the most significantly impacted by COVID-19.

* Agricultural credit growth continued to accelerate, reaching 10.2% YoY, boosted by back-to-back surplus monsoon seasons.

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