Indian Banking Sector
Bank loans to NBFCs and other personal loans moderate
SCB’s gross non-food credit growth Nov’23: Unsecured Retail still strong, Weakness in Infra credit. Overall bank credit growth momentum improved to 20.6% yoy (16% yoy exmerger) with non-food credit growth of 21% yoy (16% yoy ex-merger). This was led by continued momentum in retail credit growth of 30% yoy (18.6% yoy ex-merger) and improvement in services credit growth to 25% yoy (22% yoy ex-merger) which was offset by tepid industrial credit growth of 6.6% yoy (6% yoy ex-merger).Share of Industrial credit in total non-food credit continued to decline and was at 23.9% (ex-merger) as of Nov’23 (vs 25% in FY’23 and 28-29% levels in FY19 and FY20) while the share of retail credit remained elevated at 31% in Nov’23 (vs 25-26% levels in FY19 and FY20). 2 key highlights were (i) growth moderation in bank loans to NBFCs (21.5% yoy vs 30% average growth in FY23) and other personal loans (21.7% vs 24-25% levels in FY23) likely on the back of RBI’s increase in risk weights (recent note) to curb unsecured credit growth (ii) strong growth in commercial real estate and housing finance sector reflected in 20% yoy growth in non-PSL housing loans (ex-merger), on a strong base, (vs 4% yoy growth in PSL housing and 15% yoy in overall housing loans). Commercial real estate financing registered 16% yoy growth (ex-merger) vs 11% in 1Q’24 and FY23.
Retail loan growth aided by Non-PSL housing and unsecured personal loan growth. Retail loan growth (18.6% yoy ex-merger, 30% yoy otherwise) continues to be led by unsecured personal loan growth (23.3% yoy ex-merger) while secured loan growth was subdued at 16% yoy (ex-merger). Within unsecured loans, both credit card advances (34% yoy in Nov’23 vs 28% in Oct’23) and consumer durable credit (+11% yoy in Nov’23 vs 7.7% yoy in Oct’23) saw higher growth due to 1 month push out in festive spends in 2023. On the other hand, growth in other personal loans which have substantial portion of unsecured loans, moderated to 21.7% yoy vs 22.3% yoy in Oct’23 likely on the back of RBI’s measures towards curbing unsecured credit growth by increasing risk weights. Within secured loans, housing loan growth remained weak at 15% yoy (ex-merger) mainly due to weakness in PSL housing loans (4.3% yoy, ex-merger) which constitute 30% of total housing loans. However, growth in non-PSL housing continued to improve to 20% yoy (ex-merger), on a strong base, vs 18% yoy as of Sep’23. The 20%+ yoy growth momentum in vehicle loans which started in 2HFY23 is sustained so far.
Services credit growth led by strong growth in trade credit and commercial real estate: Services credit growth improved to 22% yoy ex-merger (vs 21% as of Sep’23) due to strong growth in commercial real estate credit which grew by 16% yoy (ex-merger) despite a strong base. While wholesale trade credit growth increased to 21%yoy, retail trade credit growth was weak at 17% yoy despite November being a festive month. Growth in bank borrowings by NBFCs which constitutes 36% of services credit, has moderated to 22% yoy levels in last 2 months (vs 30% average growth in FY23) likely on the back of RBI action to mitigate systemic risk stemming from higher interconnectedness between banks and NBFCs.
Industrial credit growth dragged down by continued sluggishness in Infrastructure credit. SCB’s Industrial credit growth of 6.6% YoY (6.1% ex merger) was primarily dragged down by continued sluggishness seen in infrastructure credit growth (2.1% YoY) which constitutes 36% of industrial credit. On the other hand, credit to commodities registered strong growth wherein credit to basic metal and metal products increased by +18% yoy, credit to textiles increased by 15% yoy and pick-up in credit to Chemicals (+6% yoy vs 0- 3% yoy growth in each of the last 4 months). Credit growth to large corporates remained sluggish at 3.6% yoy. MSME credit growth also has slowed down to 15.6% yoy vs 20-30% average growth for 2022.
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