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MOSL: FINANCIALS-Deposit growth improves-industrial growth showing signs of recovery

Financials: Deposit growth improves; industrial growth showing signs of recovery

 

Retail/SME remains strong; banks’ lending to NBFCs under pressure 

• Systemic loan growth remained strong at 14.4% YoY for the fortnight ended 15th Feb’19 (v/s 14.5% for the last fortnight), leading to a marginal decline in the outstanding credit base to INR94.0t (v/s INR94.3t for the last fortnight). However, credit growth is driven by both retail and services segments. Also, growth in industry segment improved to 5.1% YoY (v/s 1.0% YoY in Apr’18), showing signs of a recovery. However, banks’ lending to NBFCs remains under pressure (-2.3% MoM).
• We expect loan growth to remain steady, led by continued strength in the retail segment, portfolio buyouts from NBFCs due to continued funding pressure, the government’s recent capital infusion in PSU banks and the RBI’s decision to bring six banks out of PCA. Moreover, with better capacity utilization in the system, the capex cycle is improving, which will further support credit growth. We continue believing that private banks’ loan growth will remain healthy at ~20% YoY, driven by retail and SME segments. Moreover, private banks will continue eating into the share of PSBs.
• Deposit growth for the fortnight stood at 10.2% (v/s 9.6% for last fortnight), mainly due to a benign base. The outstanding deposit base reached INR121.2t. System CD ratio stood at 77.6% (20bp lower than last fortnight), while the investment-to-deposit ratio was at 27.7%.