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Event update: Financials; Sectoral credit – Retail and services continue to lead growth

According to RBI’s sectoral deployment of credit, sector loans have grown 10.9% yoy , 3.6% qoq and 0.3% mom as at end May. Non-food credit grew 11.1% yoy compared to 10.7% yoy in April-18. While the yoy growth has picked up on a low base, m-o-m, loans have been flat. Retail and services continue to be the key driver of growth while corporate growth remains subdued amidst asset quality concerns and capital inadequacy for public sector banks. The release further advocates our view of preferring retail banks and NBFCs over corporate banks. 

Key highlights

• Services continue to lead, growing 15% yoy / 8% qoq. Within services, trade - both retail and wholesale, and NBFCs have registered the strongest growth rates, partly driven by the base effect of GST. Loans to NBFCs grew 30% yoy, wholesale trade 16% yoy and retail trade 15% yoy. Within retail trade, micro credit (at 38% yoy driven by a low base) and credit to weaker sections are the key drivers. Growth in commercial real estate remains subdued at 3% yoy.
• Retail loan growth remains strong at 19% yoy and marginally down m-o-m. Credit cards (33% yoy), personal loans (19% yoy), housing loans (15% yoy) and consumer durables (17% yoy) are the key growth drivers. Growth in vehicle loans is lower than other retail segments at 10% yoy as only a few banks operate in this segment.
• Total home loans grew 15% yoy and 0.6% mom with a higher contribution from non-priority housing. Growth in non-priority housing loans came in at 23% yoy / 0.5% mom in May’18 while growth in priority home loans was lower at 4.9% yoy / 0.9% mom.
• Growth in credit outstanding for cards remains strong at 33.1% yoy and 1.5% mom.
• Industry/corporate credit continue to remain sluggish with a marginal de-growth of 0.2% mom (1.4% yoy / 0.7% qoq) with all three categories - large, medium and micro registering de-growth.
• Nothing material to report in the industry wise corporate credit breakdown with all key industries including metals, power, roads, engineering showing a mom decline.

Growth since demonetisation:

• Between demonetization (Oct-16 as the base) and now total loans have grown at a CAGR of 8.6% yoy. While growth in corporate loans has remained flat during the period, growth in retail and services has been strong at 16.6% and 15.6%. Credit cards, other personal loans and loans to NBFCs (included in services) have grown the fastest at CAGRs of 35%, 33% and 20%.
• Within this period, contribution of corporate loans to total non-food credit has fallen by 2%, contribution of retail loans has improved by 2% and contribution of services by 0.9%.

·      Within retail, contribution of credit cards has increased by 0.3% while contribution of housing has improved by 1.6%. Within services, contribution of NBFCs increased by 1.2%.