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Synopsis

* Gross bank credit offtake witnessed an accelerated rise of 19.7% year-on-year (y-o-y) in July 2023. The growth was driven by services and personal loans. However, the reported July 2023 data includes the impact of the merger of HDFC with HDFC Bank and, hence is not directly comparable. Adjusted for the merger, the non-food credit systemic growth stands at 14.8% y-o-y and -1.4% m-o-m.

* Personal loans reported a sustained growth at 31.7% y-o-y in July 2023 compared to 18.7% a year ago.

* Services segment reported a robust rise of 23.1% y-o-y in July 2023 as compared with 16.7% a year ago due to strong credit demand from key sub-segments. NBFCs declined sequentially as HDFC’s borrowings were reclassified.

* Industry moderated at 5.8% y-o-y in July 2023 from 10.5% over the year-ago period due to slow growth in MSME and muted growth in infrastructure

Figure 1: Sectoral Distribution of Credit: July 2023 (Rs. Lakh Crore)

Figure 2: Monthly Trend in Gross Bank Credit Outstanding and Growth (%)

Figure 3: Sectoral Distribution of Credit: July 2023 (Rs. Lakh Crore)

Incremental gross bank credit rose by 8.2% in July 2023, vs. 4.0% over the year-ago period due to the merger impact and strong demand from services and retail segments.

Personal Loans Segment

* The personal loans segment (largest segment with a 34.3% share) witnessed a robust growth of 31.7% y-o-y in July 2023 due to the impact of the merger and strong demand across the verticals (sub-segments). All major verticals reported healthy double-digit growth in the month. If we exclude the merger, the growth rate moderates to 18.4% which is slightly lower compared to last year

* Housing loans grew by 37.4% y-o-y in July 2023 compared to 16.1% a year ago due to the merger, and price hikes. If the merger is excluded, housing growth would have decelerated to 13.1%. Additionally, this segment could witness growth despite excluding the merger impact as realty players launch projects during the upcoming festival season to tap consumer demand.

* Vehicle loans registered a robust growth of 21.2% y-o-y in July 2023 compared to 19.2% in the year-ago period. As per SIAM, the volume (y-o-y, growth) of the auto industry rose in July 2023 contributed by the Utility Vehicle segment in passenger vehicles. Overall, outstanding credit for vehicle loans stood at Rs 5.3 lakh crore as of July 2023.

* Growth in credit cards and other personal loans remains strong though a bit moderate as compared to the previous month. Credit card spending remains strong aided by consumption in tier 2/3 cities. Unsecured loans also remain robust given the 2igitalization2 of credit and 2igitalization of loans. This is expected to remain steady in the upcoming festival season. However, concerns are being raised over the sustained push in unsecured credit and a reported rise in credit card delinquencies.

Services Segment

The services sector reported a robust growth of 23.1% y-o-y in July 2023 compared to a growth of 16.7% in the year-ago period. It was driven by robust loan demand from Commercial Real Estate, NBFCs, and other services.

Figure 4: Continued Growth in Advances of Banks to NBFCs (y-o-y, %)

* Lending to NBFCs grew by 23.6% y-o-y in July 2023 from a growth of 24.6% in July 2022. As anticipated earlier, the outstanding to NBFCs fell m-o-m as HDFC’s borrowings were reclassified. Meanwhile, the growth continues to be driven by healthy loan disbursements reported by NBFCs for their dependency on the banking system especially by the smaller NBFCs. The growth in services is largely driven by NBFCs, if NBFCs were excluded, the credit growth would have been lower but would have remained robust at 22.9% on a y-o-y basis.

* The trade sub-segment grew 17.1% in July 2023 as compared to 14.2% in the year-ago period due to growth in the retail trade (19.3%).

* The growth in services was also led by growth in ‘other services’, which grew by 23.9% y-o-y.

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