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MOSL: ECOSCOPE-Credit growth weakens further in 3QFY20; Negligible growth in real credit

ECOSCOPE: Credit growth weakens further in 3QFY20; Negligible growth in real credit

 

• Banks' non-food credit growth moderated to 7% YoY in Dec'19, marking slowest growth in two years. However, our estimates of India's non-government non-financial (NGNF) debt - of which banks account for only ~56% - suggest that NGNF debt grew only 6.2% YoY in 3QFY20, lower than 6.8% growth in the previous quarter and marking slowest growth in the past two decades. It slowed to the two-year lowest level of 81% of GDP in 3QFY20. Adjusted for headline inflation, real debt growth was marginal at only 0.3% YoY in 3QFY20, the lowest in a decade.
• NGNF credit growth slowdown was broad-based, albeit largely driven by banks, NBFCs, HFCs, corporate bonds and commercial paper, while external commercial borrowings (ECBs) are expected to have grown faster. Excluding NBFCs and HFCs, NHGNF growth was even slower at a record-low of 5.4% YoY in 3QFY20.
• Further, while household debt growth moderated to a five-year low of 8.7% YoY, non-financial corporate (NFCs) debt growth was stable at a record-low 4.3% YoY in 3QFY20. Thus, household debt inched up from 34.4% of GDP a year ago to 34.8% in 3QFY20, but NFC debt was at a 20-quarter low of 46.2% of GDP last quarter.
• Overall, these trends confirm that credit growth weakened further in 3QFY20, supporting our of lower real GDP growth in the quarter. We believe that industrial real GVA will decline for the first time in 3QFY20 (since the new data began in FY13) and real investments will also decline for the first time since FY15. Real GVA/GDP growth, thus, is to weaken further to ~4% YoY in 3QFY20.