Corporate credit offtake still weak, but retail too losing steam

Loan growth for the quarter was at 5 percent, a JPMorgan note said quoting monthly data on sectoral loan exposure and quarterly credit and deposit released by the Reserve Bank of India.

Power and non-infrastructure sectors continued to be a drag; industrial credit contracted with textiles, chemicals, engineering and food processing declining anywhere between 6 and 12 percent. Aggregate credit was down 2.3 percent; infrastructure contracted 7 percent but it was largely on account of a 10-percent contraction in power, due to UDAY bond conversion. Growth in the mid-corporate and SME segments is also sluggish, so not all of this can be explained by disintermediation.  

While much of the weakness on the corporate loans was anticipated, the worrying part was the slowdown in momentum of growth in retail loans, given retail has been the only growth driver for bank credit over the last few years. Both mortgages and non-mortgages slowed.  

Quarterly deposit data, though, indicated public sector banks gained market share in CASA, although they continued to bleed market share in loans.

The December deposit data showed a 470-basis points improvement in system CASA ratio. Some of this could partly be due to the demonetisation impact, and might decline but JPMorgan expects the residual impact to be significant, and positive on banks’ balance sheet position. 

“The improved  liquidity  position of non-SBI PSU banks is important because this  could be an important driver for deposit rate cuts over the next 1-2 months,” the JPMorgan note said.