RBI’s Mar-17 sectoral credit data indicate a sequential pick-up in credit in Mar-17 vs muted trends after demonetisation but y-y and q-q data are not comparable as Mar-17 data are as of 31 March ended while Mar-16 data are of 18 March ended and hence pick-up looks exaggerated. There is no pickup in capex-related credit growth with industry credit contracting by 2% y-y while retail credit growth picked up with Rs 800 bn of retail loan growth vs Rs 225 bn of growth over Feb to April in FY15/16. FY17 bank credit growth was 5% y-y and 7-8% y-y credit growth including bonds/ECBs and we expect credit growth of 8-10% over FY17-19F.
System credit growth still weak
While growth as per sectoral credit looks to have picked up to 9% y-y we would rely on RBI data on system credit which indicates growth of 5% y-y.
Retail growth picks up strongly
While y-y growth is not comparable, we look at 45 days of growth this year vs 60 days last year. Retail growth seems to have picked up very sharply after few months of lacklustre growth after demonetisation. Mortgage book has added Rs 400 bn of credit in Mar-17 vs Rs 225 bn last year. This is a very significant uptick. Other segments in retail also seem to have picked up.
Industry credit growth still weak, services growth looks like a year-end phenomenon
Industry growth still remained weak with a 2% y-y contraction. While the absolute addition to the book is still higher compared to last year, we think the period is not comparable and hence would wait for more data points to see if this trend normalises. Services seem to have seen a much bigger uptick to the book addition in Mar-17 of
y-y 2.3 trn vs y-y 1.8 trn in Feb-Apr16 and is driven by two segments — NBFCs and other services. While we are unsure what has led to an uptick in the other services segment, for NBFCs this seems to be more driven by year end phenomenon.
We forecast 8-10% credit growth over FY18/19F Infra/Metals and textiles contributed 30-35% of total incremental credit in FY08-14, when system credit growth was 17% y-y. Growth in these sectors, excluding SEB conversions, is down to 0%, and the deleveraging process is likely to continue. Adjusting for growth in these sectors, overall system credit growth in the high-growth period of FY08-14 would have been just 12-13%. From an effective 5% y-y increase in FY17, we forecast growth to pick up to 8-10% over FY18/19F reflecting the deleveraging cycle. With this industry growth, PSU banks should grow at 4-6% y-y, representing 18% y-y CAGR for private banks. Our top pick in the sector is ICICI Bank within corporate banks and HDFC Bank within retail banks.