Sector Update: India Financials; Retail continue to drive system growth

Prabhudas Lilladher | July 15, 2014, midnight

RBI’s monthly sectoral deployment of credit shows that overall credit growth slowed down further to 8.4% YoY as at Apr 30, 2016 from 9.1% in the previous month led by sharp decline in industry segment despite improvement in retail (19.7% YoY) & agri (15.3% YoY) growth. The share of retail credit saw increase of 26bps MoM to 21.5%, while share of industry credit came down by 108bps MoM to 40.6%, taken away by agri (30bps) & services segment (53bps). Banks continue to be cautious to lend to stress sectors like food processing, and capex heavy sectors especially power & cement, but the metal sector continues to see increase in outstanding credit.

-   Retail segment continues to remain upbeat: Retail segment growth continued to be strong with growth of 19.7% YoY & 1.3% MoM. Within the retail segment, housing continues to report steady growth and accounts for ~54% of total retail credit. Retail growth was largely driven by unsecured credit growth mainly in the credit card & personal loans.

-   Agriculture grows at faster clip:Agriculture credit growth continued to be strong at 15.3% YoY & 2.3% MoM. The share of agriculture credit in total credit has increased by 30bps MoM to 13.8%.

-   Decline in industry credit growth continues: Industry credit growth decline continued and remained flattish which has come off from ~11‐12% growth seen in Mar‐2014. Slowdown in growth was mainly in the power sector (4.6% YoY degrowth), textiles (0.4% YoY growth), food processing (13% YoY de‐growth) and cement (4.4% YoY de‐growth). Slower growth in these segments was owing to banking system’s reluctance to lend to stressed sectors and large NPA formation in last 2‐3 quarters. On the contrary, metal sector growth continued to remain high at 9.2% YoY (have 15% weightage in industry credit).

-   NBFCs credit demand driving services sector growth: Services credit grew by ~11% YoY as NBFC credit offtake improved by 13.4% YoY (3.6% MoM) on better credit outlook in asset financing. Other segments driving services credit were transport operators (13% YoY / 4.5% MoM growth) and professional service providers (43% YoY / 16% MoM growth).

-   Priority sector credit supported by Agri/Services/Weaker sections: Priority sector credit has been picking up for the last 2‐3 months on back of better agri growth & credit to weaker sections. Banks continue to remain cautious towards the manufacturing & MSME segments as stress has been building up in last few quarters.

-   We expect systemic credit growth to improve to ~11‐12% over FY17 although half of the banking system remains cautious especially lending towards capex heavy sectors and relative inability of most PSU banks to lend to retail. Monsoon trajectory will be closely watched which will directly help Agri lending, while affect consumption driving retail credit.


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