Emkay Global Financial Services has come out with its report on banking sector. According to the research firm, lower real interest rates on deposits, better returns from competing assets, declining financial savings and reserve money growth to historical lows have sustained the wedge between deposit and credit growth despite the deceleration. As the loan growth has been sustained by higher working capital requirements and consumer loans due to festive season, the loan growth is expected to come off to ~16% in Dec-Jan period.
Non-food credit growth at 17.6% yoy reflective of extended working capital cycle and flows to consumption led sectors
Sectoral deployment data for Nov’12 reveals that non-food credit growth at 17.6% yoy (highest since Oct’2011) was primarily in the nature of extended working capital cycle and increased credit flows to consumption related sectors (viz consumer durables, credit card, vehicle loans and loan against FD) on back of the festive season. Credit flow to agriculture sector continues to remain in excess of 20%+ yoy for consecutive four months (one reason is a favorable base effect). PSL loans growth too remained healthy at 15.3% yoy vs 10.8% yoy in Oct’ 2012 and 9.4% in Nov’2011. Industrial credit (+17.7% yoy) and services sector (+15.3% yoy) continue to witness growth moderation on a yearly basis.
However, on a m-o-m basis, non food credit growth at 2.8% was led by growth across all segments – agri (+2.7%), industries (+2.9%), services (+2.5%) and personal loans (+2.9%). On a YTD basis, growth remains muted in sectors of MSME, CRE (-0.3% YTD), education loans and export credit
Personal loan segment has emerged as the only asset class which has reported positive m-o-m growth for consecutive 6-months and is been led by credit flows to secured asset class viz housing and auto loans. Personal loan growth at 2.9% m-o-m was led by 4%+ m-o-m growth in credit flow to segments of consumer durables, advance against FD’s, credit cards and vehicle loans.
Services sector growth at 15.3% yoy remains weak in the backdrop of declining credit to sectors of CRE (+5.3% yoy vs +11.3% yoy in Nov’11), NBFC (+30.3% yoy vs +39.2% yoy in Nov’11) and other services (+6.1% yoy). These segments cumulative account for 58% of services sectors or 13.6% of total non-food credit. On the flip-side, higher credit growth towards trade sector (ie wholesale and retail trade) at 23.3% yoy / 4% m-o-m / 15% YTD is clearly reflective of extended working capital cycle.
Industrial credit growth remains moderate at 17.7% yoy vs 20.9% yoy in Nov’11 with credit to MSME segment now at 6.7% yoy vs 20% in Nov’11. The consumption and working capital led loan growth is also reflecetd in 14% m-o-m growth in loans to petroleum companies; 3.5% m-o-m growth in loans to fertilisers companies and over 4%+ m-o-m growth in credit to Cement and basic metals and infrastructure sector.
Priority sector loans saw a flip with growth at 15.3% yoy vs 10.8% in Oct’12. Recent easing in PSL norms should aid growth in pockets of agriculture (both direct and indirect), MSE and housing
55% of industries report lower growth vis-à-vis the previous period
Amongst industries, 18 out of the total 33 industrial segments with 74% share have reported growth lower than growth in Nov’11. Credit to sensitive segments of textiles, basic metals, engineering and infrastructure witnessed 19% yoy growth in Nov’12 vs 21% yoy in Nov’11.
As highlighted in our strategy report : India Strategy - Early to call off PSU banks de-rating, we believe that lower real interest rates on deposits, better returns from competing assets, declining financial savings and reserve money growth to historical lows have sustained the wedge between deposit and credit growth despite the deceleration. As the loan growth has been sustained by higher working capital requirements and consumer loans due to festive season, we expect the loan growth to come off to ~16% in Dec-Jan period.
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