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MOSL: FINANCIALS-Credit growth – Changing gears

Financials: Credit growth – Changing gears

 

Systemic loan growth has shown initial signs of recovery. At 12.1% YoY for the latest fortnight, the credit growth rate is one of the highest in more than three years. For FY18 too, credit growth recovered to ~10% from 5% in the previous year. We note that this growth is glaringly concentrated in the hands of private banks, which have collectively reported 21% credit growth for FY18 and are generally sighting strong credit opportunities. The headline credit growth number at 12% YoY appears even more encouraging when seen in context of the fact that (i) a total of 11 PSU banks representing ~18% of the systemic market share are under the Reserve Bank of India’s (RBI) Prompt Corrective Action (PCA), and thus, have limited ability to grow their loan book and (ii) other PSU banks are still dealing with asset quality and capitalization constraints. We, thus, expect the private banks to maintain their strong trajectory and capitalize on the credit vacuum that has been created in the system. Within private banks we like HDFC Bank (HDFCB), ICICI Bank (ICICIBC), RBL Bank (RBK) and Yes Bank (YES) while within PSU banks we like State Bank of India (SBIN).

Credit growth continues improving; benign base to support further recovery

Systemic credit growth has recovered to 12% YoY – the highest rate in more than three years. We expect the trend to improve further, led by continued traction in retail and working capital loans. Capacity utilization levels in the system have also improved, and we expect a gradual recovery in the capex cycle, particularly after the resolution of the RBI’s two NCLT lists, which is expected to happen in FY19. The credit base remains extremely benign (negligible increase in outstanding credit over the first seven months of FY18), boosting the credit growth prospects.