Your money: Loan growth showing signs of moderation

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Published: August 23, 2019 2:08:20 AM

Loan growth for the industry has declined to 12% in 1QFY20 compared to 15% last quarter due to deceleration in retail demand, slowdown in auto loans and two-wheelers has led to slightly moderated growth trends 1QFY20.

money, Loan growth, moderation, Loan, HDFC Bank, BOB, bank of baroda, corporate loans, PSU bankCorporate loan growth has started to revive at a slow pace & in the absence of strong traction in capex cycle will be muted

Loan growth was at 13% year-on-year (y-o-y) for banks under coverage (excluding BOB), lower than 15% witnessed in past few quarters. Loan growth was driven by growth in retail loans while corporate loans started to show signs of revival, albeit at a muted pace.

Loan growth for the private sector under coverage was strong at 17% y-o-y, higher than industry average but lower than that witnessed over past few quarters. Loan growth of PSU banks under coverage (excluding BOB) was broadly in line with last quarter at 11% y-o-y.

Loan growth for the industry has declined to 12% in 1QFY20 compared to 15% last quarter due to deceleration in retail demand, slowdown in auto loans and two-wheelers has led to slightly moderated growth trends 1QFY20.

Higher share of retail loans
There has been a gradual shift in the loan mix in favour of retail loans for most banks. Within retail, home loan growth was modest while unsecured loans were strong (on a low base). For private banks such as HDFC, Axis, ICICI and others, a majority of retail loans growth has been driven by unsecured loans like personal loans and credit cards. Personal loans and credit cards increased 5% y-o-y for HDFC Bank from peak growth rates of 35-40% y-o-y in FY18-19. The share of unsecured loans is high at >30% of retail loans for HDFC Bank. Growth in SME/ MSME loans was muted in 1QFY20 as most banks maintained a cautious stance.

Corporate loan showing reversal in trends
Corporate loan growth has started to show a reversal. There is negligible improvement in capex across most companies. There are, however, select sectors where signs of recovery and increase in investment are visible (renewable, infrastructure, etc.). The quantum, though, remains considerably low. Additionally, most banks are focused on lending to better rated corporate segment.

Among new private banks, IndusInd Bank and RBL continued to report rapid rise in loans at 25% and 35% y-o-y, respectively. Yes Bank slowed pace of growth as focus shifted to portfolio realignment and capital conservation (loan growth was modest at 10% y-o-y). Axis Bank and ICICI Bank reported modest loan growth at 13-15% y-o-y, a trend similar to previous quarters. With gradual fading away of asset quality concerns, loan growth is expected to gain momentum going ahead. Loan growth for HDFC Bank was lowest in the past 10 quarters at ~17% yoy; growth slowed down post reviving in 1QFY19.

Loan growth has started to moderate in the retail segment driven by slowdown in select segments. While unsecured loan growth is strong, reduction in inquiries and gradual wearing off of low base will lead to decline in pace of growth. Corporate loan growth has started to revive at a slow pace and in the absence of strong traction in capex cycle, corporate loan growth will be muted. MSME and MFI loans will dominate growth driven by increase in penetration and rapid acquisition of new customers.

Edited extracts from Kotak Institutional Equities Research report

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