>INDIA BANKS: Sector-wise credit growth trends

Riskier lending slowing down




Sector-wise analysis of credit growth
■ As of the last available sector level data released by the RBI (November 18, 2011), aggregate non-food credit growth was 16.8% yy with primary contributions from industry (20.9% y-y), services (16.9% y-y), retail (13.4% y-y) and agriculture (7.3% y-y). We expect credit growth to average 16.5% for FY12.


■ Working with 16.5% credit growth for the sector for FY12F, we have examined what proportion of this total credit target for FY12F has been completed so far by each of the major sectors and then compared it with the proportionate completion over the same period in FY11 and FY10. Looking at Figure 1, credit growth for the industry has completed 59% of the annual target so far in FY12, compared with 51% in FY11 and 38% in FY10. When adjusted for loans given to the power sector, industry has clocked 53% of the annual FY12 credit target (comparable proportions for FY11 and FY10 were 45% and 29%, respectively). In comparison, retail, SME and services sector credit have been relatively slower so far. We look at the subsector trends within each of these sectors in detail below.


■ Looking at the subsectors within industry category – and assuming a 16.5% credit growth target for the subsectors for FY12F – subsectors such as power, roads, iron & steel and engineering are well placed in terms of proportion of the annual target completed. Using this metric, the ‘roads’ subsector comes out as a clear topper, which is in accordance with some of the guidance given by banks and NBFCs a few quarters back (that order activity in the roads sector is expected to pick up). Textiles, food processing and telecom are clearly lagging so far, but seasonal priority sector lending effect could come into play for textiles and food processing.


■ Within retail loans – vehicle loans have tracked better so far than mortgage loans, while non-collateralized loans are clearly much slower. Mortgages have completed only 46% of the proposed annual FY12F target so far, compared with 59% in FY11 and 57% in FY10.


■ In the services sector – commercial real estate has been the biggest laggard. Major subsectors such as NBFC and Transport Operators are lagging so far this year due to regulatory uncertainty surrounding their priority sector status and ban on mining operations in certain parts of the country.


■ In priority sector lending – While manufacturing SMEs are on track, service-driven SMEs are clearly lagging behind. While decline in agri credit could get reversed on the back of strong Rabi harvest and fourth quarter push, small ticket mortgage book could be a laggard.


How to read the charts - In the charts below we have plotted the YTD change in outstanding bank credit to different sectors as a ratio of full year change in their respective loan books. And then we have compared it across FY12, FY11 and FY10. While for FY10 and FY11, we have
used the actual annual change in loan book as the denominator, for FY12 estimates we have used our assumption of uniform credit growth of 16.5% across all categories to arrive at the denominator. The figures in parentheses indicate the category’s current loan book as a proportion of overall bank credit.

Fig. 1: YTD change in bank credit as % of full year change

Credit to Industry on track, retail and SME growth sluggish in FY12

Fig. 2: Breakdown of YTD change in industry loan book

Power and road sector drive strong growth, chemical and telecom lag

Fig. 3: Breakdown of YTD change in retail loan book

Mortgage growth weaker in FY12, non-collateralized book a laggard

Fig. 4: Breakdown of YTD change in services loan book

Trade finance, lending to NBFC on track, realty and transport laggards

Fig. 5: Breakdown of YTD change in priority sector loan book

RISH TRADER