Banking & Financials Sector Update : Retail softens further, gold sees high growth By Elara Capital Ltd
Retail softens further, gold sees high growth
The Reserve Bank of India (RBI), in its latest print for January 2025, continued to report an overall loan growth sub-12% YoY. Within segments, agriculture grew 12.2% YoY, services 12.5% YoY, retail 11.8% and industry 8% YoY. Retail growth continues to be soft at ~12% (>20% earlier). Within retail, sequential growth was slower in most segments, including unsecured retail. With this, the retail share currently forms ~33% of loans, up from 19.0% in FY15, even as the industry’s share has fallen to ~22% from 44% in FY15.
We observe three MoM trends: 1) barring Services, other three segments are seeing sub-1% MoM growth, 2) lending to non-banking finance companies (NBFCs), housing finance companies (HFCs) and public financial institutions (PFIs) continues to be muted, and 3) industry growth has slowed further with decline in medium enterprise. Overall loan growth seems to be seeing a broad-based slowdown, even lower than our expectations for FY25. However, the RBI’s recent pro-growth stance may help ease out some pressure (remain watchful of the trends).
Retail loan growth slows; gold loans holding up:
Retail growth came in at 11.8% YoY and 0.6% MoM in January. Unsecured retail growth in consumer durables declined by 2.6% YoY versus a growth of 13-15% and personal loan growth at 75% YoY, on a low base – we see this as a monitorable given the change in rules.
Overall growth in services holding up; growth in NBFCs muted:
Services grew 12.5% YoY and 1% MoM, given the mixed trend in growth across segments. The NBFC segment witnessed a YoY growth of 7.7%. Within NFBCs, HFCs witnessed a drop while PFIs continued to grow. Among other segments, Aviation and Retail Trade witnessed a sequential slowdown, while others held up.
Industry growth subdued:
Industry growth came in at 8% YoY and 0.5% MoM, led by growth in micro and small enterprises and large industries, which grew 1% and 0.5% MoM respectively, whereas medium enterprises declined 0.6% MoM. We believe the corporate capex cycle will be key to bolstering overall growth. Within the industry, traction was better for Petrochemicals and Food Processing. We expect credit growth for the large industry segment to improve once the private capex cycle picks up, which, we believe, is still some time away.
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