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Credit growth at 15.3% YoY as of 12th Aug’22; deposits up 8.8% YoY

Retail loans up ~18% YoY in Jun’22, constitutes ~31% of total loans

* Systemic loan growth remained robust and hit a fresh high at 15.3% YoY for the fortnight ended 12th Aug’22 (v/s 14.5% in the preceding fortnight). The last time systemic loan grew by ~15.3% YoY was in Nov’13. The outstanding credit base stood at INR124.3t. In FY23 to date, loans grew 4.5%. We expect systemic credit growth to maintain its traction and grow by ~12%/13.5% YoY in FY23/FY24

* Retail loan growth continued to remain strong (up 18.1% YoY), led by ~31%/ ~18%/~15% YoY growth in Credit Cards/Auto/Home loans. The mix of Retail loans increased to 31.3% of total loans from 29.8% in FY21.

* Industry credit growth is recovering gradually (up 9.5% YoY in Jun’22 v/s 8.7% in May’22). Within the industry, credit to medium industries registered a robust 47.6% YoY growth, while credit to micro and small industries accelerated by ~30%. Credit to large industries grew 3.3% YoY, and is seeing a healthy recovery.

* Credit growth in the Services sector stood at 12.8% YoY in Jun’22, led by a healthy growth in NBFCs (up 21.1% YoY). Credit to the Agriculture sector picked up, rising 13% YoY in Jun’22 v/s 11.8% YoY in May’22.

* Deposit growth remained modest at 8.8% YoY for the fortnight (up 2.9% in FY23 to date). The outstanding deposit base stood at INR169.5t. Within deposits, Banks have seen mixed trends in garnering Retail deposits, resulting in an uptick in CASA ratio by small and mid-size Banks, while large Banks saw a moderation. In the ongoing rising rate cycle, we anticipate deposits to gain momentum.

* The Credit-to-Deposit (CD) ratio for the system improved to 73.3% from 69.6% in Nov’21. The incremental CD ratio for the fortnight stood ~120%.

Valuation and view

The Banking system is seeing a healthy recovery in loan growth, led by a revival in the Corporate segment, while growth in Retail and SME remains robust. Deposit growth remains modest, but is expected to see some uptick in the current rising interest rate regime. While any material change in the demand environment needs to be monitored, given the challenging macro-environment, we expect systemic credit to grow by ~12%/13.5% YoY in FY23/FY24. Banks with higher CASA and floating rate loans are likely to be better placed in a rising rate environment. Our top picks are ICICIBC and SBIN.

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