3 April 2012

Update

India Banking

Industry contributes ~61% of incremental loan

growth YTD; Agri growth improves; Retail still muted

RBI released monthly credit deployment data of scheduled commercial banks

for month ended Feb-2012. Key takeaways:



Non-food credit growth moderates further to 15.4% YoY as compared to

15.9% in Jan-12 and 22.8% a year ago. On a YoY basis, Industrial loan

growth (19%) continues to outpace retail loan growth (~11%) and

Agriculture growth (muted at ~8%). Services grew largely in-line with overall

loan growth. Industrial loan growth excluding infrastructure stood at 19%.



YTD (Feb over March) loan growth stood at 12% v/s 17% in the

corresponding year ago period. Agriculture loan growth continues to lag

overall loan growth and its share has come down to 11.6% (improved 10bp

on MoM basis) v/s 12.6% in March 2011 and 12.3% a year ago. On a YTD

basis, Agri loans grew only 3% agriculture segment, though there has been

some improvement over past few months. Moderation in agri loan growth

could be attributed to cautious stance adopted by banks due to higher NPA

in the segment and also due to reclassification of definition by RBI where

certain agri. allied credit has been disqualified from March 2011.



In industrial loans (up ~19% YoY), strong contribution was witnessed from

Mining (+40% YoY on a lower base), Metals (+22% YoY), Gems and Jewelry

(+28% YoY) and vehicle and transport equipment (+25%). Growth in

infrastructure segment moderated to 19%. With infrastructure power

(+23%), roads (+26%) and other infrastructure (+30%) continues to report

healthy YoY loan growth. Growth in telecom segment continues to decline

(down 6% YoY and 8% YTD) and now it forms 2.2% of overall loans as

against 2.8% a year ago.



Services segment grew 15.2% YoY largely driven by NBFCs (+31% YoY, an

area of concern). On a YTD basis (Feb over Mar), services grew ~10% driven

by NBFCs (~18%), Tourism (+13%) and Trade segment (+14%).



Overall personal loan growth moderated further to 11.4% YoY. However

personal loans grew ~9% YTD. Housing loan growth moderated to 11.2% v/s

13.2% a month ago; YTD growth stood at ~10%. Some of the other retail

products like vehicle loans, education loan and credit card have grown

strongly by 18% YTD, 15% YTD and 14% YTD, respectively, led by higher

focus of private sector banks on this segment. Growth in consumer durable

segment continues to remain under pressure with it declining by ~14% YTD.

1

India Banking

Industrial loan continues to be the key share in overall loan growth

Industrial loans driven by mid-sized and large corporate; Mining, Infra and

Metals remain key drivers



Industry loan growth driven by large and mid corporate:

Industrial segment

loans grew ~19% YoY (v/s 20% in Jan-11 and ~27% a year ago). Large corporate

loans grew ~20% YoY whereas mid-corporate loan grew 21% YoY. While on a

MoM basis, growth was led by mining, sugar, rubber and plastic products,

fertilizers, metals and construction, decline was seen in petroleum, beverage

and tobacco and telecom segments. MSME credit continues to lag overall

growth however on a lower based improved to 13.5% as against 9% a year ago.

Power sector growth buoyant….:

Power sector loans grew ~23% YoY and ~19%

YTD, largely driven by higher disbursements to private sector developers, in our

view. Share of power sector loans in overall loans have increased to 7.8% (stable

MoM) v/s 7.3% in FY11 and a year ago.

… as also roads:

Buoyancy in Road segment continued with loan growth of 26%

YoY and 22% YTD. Share of Roads in overall loans increased to~ 2.8% (stable

MoM) v/s 2.5% in FY11. Within infrastructure, telecom growth continued to

decline (down ~6% YoY and 8% YTD).

Overall share of infrastructure has increased to 14.8%

v/s 14.4% in FY11 and

14.1% a year ago. YTD infrastructure loans have contributed 18.7% of

incremental loans (of which power contributed ~62% of incremental

infrastructure loans). Excluding Infrastructure, non-food credit growth stood at

14.8%.







Retail loan growth moderates further; service sector in line with overall

loan growth



Retail loan growth moderates MoM: Retail loans grew 11.4% YoY v/s 12.7% in

Jan-12 (~16% in Feb-11). With interest rate being at an elevated level housing

loan (largest contributor at 51% of retail loan) growth declined to 11.2% YoY v/s

15.2% a year ago (~13% in Jan-12). Growth in consumer durable segment

continues to remain under pressure with it declining by ~14% YTD.

However some of the other key retail products like vehicle loans, education loan

and credit card have grown strongly by 18% YTD, 15% YTD and 14% YTD,

respectively, led by higher focus of private sector banks on this segment.

Growth in service segment remains in-line with industry: Loans to Services

segment grew at 15.2% YoY (v/s 15.5% in Jan-12 and 24% in Feb-11). On a YTD

basis (Feb over Mar), services grew ~10%. NBFC posted highest growth (up 31%

YoY and ~18% YTD) among all segments and its share in overall loans increased

to 5.1% v/s 5% a month ago and 4.5% a year ago. Tourism (+13%) and Trade

segment (+14%) were the other two key sectors which reported strong YTD





3 April 2012

2

India Banking

growth whereas growth in real estate segment was relatively muted (+7.5%

YTD)

Outlook and view



Downward trend in inflation and moderating growth present a compelling case

for reversal in interest rate cycle. Recent move by RBI to reduce CRR ratio by

75bp increases the evidence for the same. Increase in liquidity and reduction in

interest rate could significantly alter the growth and asset quality outlook which

would be positive for financials.

In CY12 YTD, average liquidity infusion by RBI stood at

~INR1.3T

and still remains

at an elevated level of ~INR1.5T i.e. above the RBI comfort zone of +/- 1% of

NDTL. Thereby further liquidity easing measures by way CRR and OMO cannot

be ruled out.

While slippages have declined, higher restructuring of loans in 3Q and expected

in 1HCY12 remains a concern. Some of the big ticket restructuring like SEBs,

Airlines, GTL, etc are already getting modeled in, and credit costs estimates

remain high. Improvement in growth outlook and lower rates can help mitigate

some of these concerns in 2HCY12.

Our preferred bets: PSU banks – SBIN and PNB; Private banks – ICICIBC; Midcap

banks – YES and INBK.







3 April 2012

3

India Banking

Industry remain a key driver of gr. Agri loan gr. improves (YoY gr, %)

Contribution of all segment remains largely stable (%)

:

Incremental loan mix shifts in favor of industry and agri. segment (%)

Infrastructure Loan growth remains healthy(%)

:

:

Power contribution remains high; telecom contr. declines

Major contributors to the services segment (%)

:

:

:

3 April 2012

4

India Banking

Services growth driven by NBFC segment

Real estate loan growth moderates further (%)

:

Housing credit growth moderates (%)

:

:

3 April 2012

5

India Banking

3 April 2012

6

India Banking

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3 April 2012

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