Credit growth weakens further in 3QFY20
Negligible growth in real credit
25 February 2020
The Economy Observer
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.
NGNF credit growth at record low in 3QFY20
Total credit to India’s NGNF
sector grew only 6.2% in
3QFY20, marking slowest
growth in the past two
From average 13% growth over FY16-19, total credit to India’s NGNF sector grew
only 6.8% YoY in 2QFY20, which slowed further to 6.2% in 3QFY20, marking its
slowest growth in the past two decades (Exhibit
Adjusting for inflation (measured
by consumer price index (CPI)), NGNF’s real debt grew at a meager 0.3% in 3QFY20,
the slowest in a decade and compared to above-9% growth in the previous four
years. Further, with our estimate of 7% growth in nominal GDP in 3QFY20, the NGNF
debt-to-GDP ratio declined further to 81% in 3QFY20, the lowest ratio in the past
nine years and as against the peak of 83.3% at end-Mar’19
…and NGNF debt-to-GDP ratio weakened to nine-
quarter low of 81%
NGNF debt-to-GDP ratio (%)
India’s NGNF debt grew at record low of 6.2% YoY
NGNF nominal debt
NGNF real debt
Please see Appendix at end of the report for methodology
Source: Reserve Bank of India (RBI), Central Statistics Office (CSO),
Bloomberg, NBFCs/HFCs company reports, CEIC, MOFSL
Nikhil Gupta – Research Analyst
(Nikhil.Gupta@MotilalOswal.com); +91 22 6129 1555
– Research Analyst
(Yaswi.Agarwal@motilaloswal.com); +91 22 7193 4196
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.