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RBI sectoral credit for Oct’21

Corporate credit offtake on the mend

Credit growth for Oct’21 saw a MoM uptick of 80bps (previous month 60bps). Loan accretion is gradually picking up, with YoY growth at 6.9% (vs 6.8% in Sep’21). Industries saw some uptick with a slight improvement of 88bps MoM, driven by rise in large industries and MSME credit. On a higher base, growth in agriculture continues (+10.2% YoY) while there was an increase of 1.7% MoM. Personal loan growth was higher MoM at 1.3% (last month 0.9%) while services improved, growing by 1.3% MoM (last month declined by 2.0%). Housing (part of personal loans) was stable MoM while NBFC saw further MoM growth and HFC credit declined MoM. We lower our systemic credit growth est. for FY22 from 8-10% to 7-9% as Apr-Oct’21 loan growth was only ~0.9%.

Industrial credit offtake saw a marginal uptick but remains muted

Industrial credit improved by 0.9% MoM (vs 0.35% in Sep’21). This time we saw an uptick in large industries which has been on the mend since the past 4 months. Growth in large industries (80% share in industry) was 0.5% MoM (vs flat in Sep’21) implying that repayments would have declined with some rise in capacity utilisation. Also, MoM increase in MSME credit continues which grew by 2.4% MoM. In terms of segments, the accretion was led by infrastructure (+2.1% MoM, 38.4% share), chemicals & products (+1.8% MoM, 6.5% share) and rubber (+3.5% MoM, 2.2% share). Within infrastructure power was the main segment that saw an uptick of 2.1% MoM while other infrastructure also grew by 9.2% MoM.

Services growth remains picks up; personal loan momentum continues

Services saw an uptick and grew by 2.9% YoY due to a MoM increase of 1.3%. The expansion was mainly led by trade, NBFC and other services (+1.5% MoM). Trade grew by a healthy 3.3% MoM that was largely led by wholesale trade (+5.3% MoM) while retail trade also rose. NBFCs saw an uptick of 0.8% MoM while HFC credit saw a 0.5% downtick. Personal loan accretion improved MoM and grew by 1.3% (+0.9% in Sep’21). Momentum in housing credit continued which saw an accretion of 0.5% MoM also due to a pent-up demand. Pace of consumer spending sustained, with the economy opening up also coinciding with the festive season as consumer durable and credit cards each saw a 6.6% MoM increase while vehicle loans also improved compared to Sep’21. Personal loans grew by 11.7% YoY, led by housing (share 50.3% in personal loans), other personal loans (share 29%) and vehicle loans (9.2% share).

Annual credit flow shifted YoY from industry/services to agriculture/personal loans

Overall growth at 6.9% YoY, was mainly supported by personal loans (+11.7% YoY, share 26.9%) while industries and services growth saw an uptick though remains muted compared to previous highs. Annual incremental credit flow of Rs7.1trn for the month saw a shift YoY from services to industries, agriculture and personal loans. Industries’ credit flow shifted YoY from -3.7% to 16.0%. Due to services being affected by the pandemic, services credit flow share saw a drastic reduction YoY from 40% to 10%. However, on a MoM basis share of services in annual credit flow improved from 3% to 10%. On a YoY basis, services flow shifted to personal loans and agriculture that saw share grow from 42% to 44% and 16% to 17.5%, respectively.

Outlook and view

While overall credit growth may pick up in H2FY22, we revise our band lower for FY22 systemic credit growth from 8-10% to 7-9%. As the economy is bouncing back, indicated by strong loan growth and recoveries reported by most of the private banks, we remain optimistic on the banking sector. Collections and restructured portfolio behaviour remain key monitorables in the near term. Prefer SBI and Axis along with ICICI and among large cap-banks given their strong pedigree, lower stress formation and balance sheet size. We also like Federal and DCB Bank among midcaps.

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