Update | Financials
| 29 March 2019
Credit growth remains healthy
Retail/SME loan growth strong; industrial growth showing signs of recovery
The share of retail loans
increased to ~26% of the total
For the fortnight ended 15 Mar’19, systemic loan growth remained strong at 14.5%
YoY (v/s 14.4% for last fortnight) with the outstanding credit base reaching INR95.5t.
Credit growth was driven by both retail and the services’ segments. Also, growth in
the industrial segment improved to 5.6% YoY (v/s 1.0% YoY in Apr’18), clearly showing
signs of a recovery. Banks’ lending to NBFCs has also slightly improved (3.2% MoM).
We expect loan growth to remain steady, led by (a) continued strength in the retail
segment, (b) portfolio buyouts from NBFCs due to continued funding pressure, (c) the
government’s recent capital infusion in PSU banks, and (d) the RBI’s decision to bring
six banks out of PCA.
Moreover, with better capacity utilization in the system, the capex cycle is also
improving, which should further support credit growth. We continue to believe that
private banks’ loan growth will remain healthy at ~20% YoY, driven by retail and the
SME segments. Moreover, private banks should continue gaining market share not
only from PSBs, but also from NBFCs.
Deposit growth for the fortnight stood at 10.0% (v/s 9.8% the last fortnight), mainly
due to a benign base. The outstanding deposit base reached INR122.3t. System CD
ratio stood at 78.1% (30bp higher than last fortnight), while the investment-to-deposit
ratio was at 27.8%.
Within retail loans, Credit
cards growth was the highest
at 27% YoY
Retail and services – key engines for growth
The retail (+17% YoY) and services’ (+24% YoY) sectors remained the key drivers of
loan growth as at Feb’19. Also, industrial growth picked up to 5.6% YoY (from 1.0%
in Apr’18). The share of retail in total systemic credit improved to 26% v/s 20% four
years ago. Retail traction for banks was driven by strong growth in credit cards
(+27% YoY), housing loans (+19% YoY) and other personal loans (+22% YoY). Further,
portfolio buyouts from NBFCs could have also contributed to the growth.
Lending to NBFCs improves to +3.2% MoM
Banks’ exposure to NBFCs grew at 47.5% YoY (+3.2% MoM) to 6.9% of overall credit
in Feb’19 (v/s 7.0% in Dec’18). Lending to NBFCs increased strongly until Sep’18, but
slowed thereafter due to liquidity issues (growth slowed to 4.4% QoQ in 3QFY19 v/s
18.4% QoQ in 2QFY19). Many banks in their recent result announcements
highlighted a cautious stance towards lending to select NBFCs, while confidently
continuing lending to strong parentage/better rated NBFCs.
Maintaining preference for AXSB, ICICIBC and HDFCB
The outlook for corporate banks is improving, given the moderation in slippages,
reduction in total stressed loans and improving profitability. We believe that revival
in credit growth, along with improved pricing power should help drive faster NII
growth. Among corporate lenders, we prefer AXSB and ICICIBC – we expect their
earnings to accelerate significantly from FY20 onwards.
Within our coverage
universe, we maintain our preference for ICICIBC, AXSB, and HDFCB.
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542
(Parth.Gutka@motilaloswal.com); +91 22 6129 1567
(Alpesh.Mehta@MotilalOswal.com); +91 22 6129 1526
(Himanshu.Taluja@motilaloswal.com); +91 22 6129 1544
(Yash.Agarwal@motilaloswal.com); +91 22 6129 1571
Investors are advised to refer through important disclosures made at the last page of the Research Report.
29 March 2019
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.