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Retail credit growth improves to 10.2% YoY; forms ~29% of total loans

Retail loans comprise 58% of incremental credit over FY21

* Systemic loan growth stood at 5.3% YoY for the fortnight ended 9 th Apr’21. The outstanding credit base has now reached INR109t. Retail credit growth improved to 10.2% YoY (v/s 9.6% YoY in Feb’21), with retail loans comprising ~58% of incremental credit over FY21. Among the retail segments, Housing Loans grew 9.0% YoY (8.4% in Feb’21) and Vehicle Loans rose 9.5% YoY (8.3% in Feb’21). Credit Cards growth picked up to 7.8% YoY (4.8% YoY in Feb’21).

* Industry growth remained flattish, while growth in the Services segment moderated to ~1.4% YoY. Agri growth also picked up to 12.3% YoY.

* Systemic loan growth is showing signs of revival, aided by rising consumer demand; disbursements across various retail products – such as 2W, Home, Auto, LAP, and Gold loans – have surpassing pre-COVID levels. Banks, however, remain cautious about growing the unsecured book. Even growth in the Corporate segment is recovering, with the focus on lending to high-rated corporates, primarily for working capital needs.

* However, we remain cautious amid the second wave as the rising cases and continued lockdowns in major states could impact the growth trajectory. We expect the 1HFY22E capex cycle to be supported by PSU entities, while private sector capex would revive from 2HFY22E. Thus, we expect banking system credit to grow ~9.5%/13% YoY over FY22E/FY23E, with private banks expected to grow higher at ~16% YoY.

Retail growth improves to 10.2% YoY in Mar’21, led by home/auto loans

Retail credit growth improved to 10.2% YoY in Mar’21 (v/s 9.6% YoY in Feb’21), with growth in home loans improving to 9.0% YoY (v/s 8.4% YoY in Feb’21). Vehicle loan growth also improved to 9.5% YoY (v/s 8.3% YoY in Feb’21); credit card growth stood at 7.8% YoY. On a monthly basis, retail loans grew 1.4% MoM – within which home/vehicle loans grew 1.3%/0.9% MoM, while credit card growth stood flattish.

Overall, the share of retail in total systemic credit stood at 29.1% (v/s 20% four years ago), comprising ~58% of incremental credit over FY21. Banks have indicated that growth in retail segments – such as Tractors, 2Ws, Auto Loans, Gold Loans, and Housing – has surpassed pre-COVID levels, while recovery is seen in the Corporate segment. However, we remain cautious amid the second wave as the rising cases and continued lockdowns in major states could impact the growth trajectory.

Industry growth muted; expect capex demand to pick up over FY22E

* Large-scale industries posted marginal decline of 0.8% YoY. However, medium-scale industries grew robustly at 29% YoY, while the trend in micro/small businesses was muted at 0.5% YoY.

* Furthermore, growth in the Services sector moderated to 1.4% YoY, while the Agri sector improved to 12.3% YoY. Among the sectors, Commercial Real Estate grew 2.5% YoY, while Transport Operators came in flat YoY. NBFC, however, grew strongly at 17% YoY.

* Given the government focus on improving expenditure, we expect capex demand to pick up – the 1HFY22E capex cycle would be supported by various PSU companies, and a revival is expected in private sector capex from 2HFY22.

System deposit growth healthy at 10.9% YoY; CD ratio stands at ~72%

Deposit growth for the fortnight stood at 10.9% YoY. The outstanding deposit base reached INR152t. Most banks are focusing on garnering deposits (particularly CASA and retail TD) to ramp up their liability franchises and reduce dependence on bulk deposits. The systemic CD ratio stood at ~72% (v/s ~76% in Mar’20).

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