Banks: Sector Credit Trends- Stable; Sustainable?

  • 10 months ago
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While non-food credit growth sustained at 6.7% YoY (6.7% in June), its drivers changed significantly. Industrial credit growth slowed to 0.8% YoY, from 2.2% in June, and personal loan growth increased to 11.2% YoY (vs. 10.5% YoY in June). Service credit growth dipped 60bps from June levels to 10.1% YoY. Agri credit growth improved 300bps MoM to 5.4% YoY. The slight increase in personal loan growth and sustenance of the pace of service credit growth is promising, but it remains to be seen whether these trends are sustainable, especially after repayments/ collections increase as the moratorium ends.

Industrial credit: Led by a significant slowdown in large industrial credit growth (1.4% YoY, vs. 3.7% YoY in June, -2.6% MoM- the sharpest MoM decline in the last 10 years), overall industrial credit growth slowed to 0.8% YoY, from 2.2% YoY in June. Credit to micro and small industries continued to de-grow (-1.9% YoY), and while credit to medium industries de-grew 3.1% YoY, it grew 6.6% MoM- indicative of disbursals under the MSME credit guarantee scheme. Within industrial credit, sectors such as textiles, gems and jewelry, glass and glassware, and all engineering including electronics saw persistent YoY de-growth. Interestingly, credit for petroleum, coal products and nuclear fuels (-21.2% MoM) and petrochemicals (-9.5% MoM) witnessed significant declines.

Service sector credit growth slowed slightly to 10.1% YoY, from 10.7% YoY in June. Within this space, trade credit growth accelerated to 9.2% YoY from 6.1% in June (led by an increase in wholesale trade-credit growth to 16.5% YoY from 10.9% in June). Credit to the CRE sector grew at 11.8/1.7% YoY/MoM, and growth in credit to NBFCs, while robust slowed to 24.6% YoY from 25.7% in June.

Personal loan growth, which has declined significantly from pre-COVID-19 levels, increased to 11.2% YoY from 10.5% in June. MoM growth in credit to the sector accelerated to 1.6%, from 0.5% in June. Sub-segments such as credit card debt (+7.9% YoY, vs. +2.8% in June), vehicle loans (8.1% YoY vs. 7.1% in June), and other personal loans (+13.3% YoY, vs. 12.1% in June), drove this recovery. This uptick in growth is promising, and we will watch for the sustainability of the pace of increase in growth.

The full version of the analysis including charts can be found in the attached PDF file:

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