Non-food credit growth may slow further from the current three-year low level of 5.3% year-on-year (y-o-y) as disbursements fall and repayments rise. Analysts tracking the banking sector said that a decline in retail loan growth is driving overall credit growth down and this may not change any time soon.
On Monday, HDFC Securities said in a note that the slowing growth rate is no surprise as disbursements by banks are likely to have been muted while repayments have gradually improved. “We believe that a further reduction in non-food credit growth is inevitable. Muted disbursal trends and an increase in repayment rates from current levels after the completion of the moratorium is likely to limit growth,” analysts at the brokerage said.
According to data released by the Reserve Bank of India (RBI), the rate of growth of outstanding loans in the retail segment was only 10.6% y-o-y in August 2020, down from 15% in March 2020. Some pockets of small-ticket loans are seeing a pick-up, though.
Motilal Oswal Financial Services (MOFSL) said that as per its discussions with banks, momentum in retail growth is picking up, with segments like tractors, two-wheelers, gold loans and affordable housing seeing the fastest improvement. “Overall, we believe recovery in high-ticket retail loans, CVs (commercial vehicles) and corporate demand would be much slower,” analysts at MOFSL said.
State Bank of India’s (SBI) research wing said that incremental bank credit, which had increased in June and July by Rs 39,200 crore, declined in August by Rs 36,000 crore. This was mainly due to a decline in credit in the retail and infrastructure segments. Consumer leverage also fell in August, said SBI Research. “The consumer deleveraging which had declined by whopping Rs 53,023 crore in Jun ’20 has improved to Rs 14,111 crore in Aug’20,” researchers at SBI said, adding, “Now the question is how much of this consumer deleveraging is because of lockdown/lack of business and how much is because of consumer actually maintaining a discipline in consumer behavior.” This could be crucial in deciphering the direction in which banks’ asset quality will move in FY21.
