India Financials: Overall growth for FY17 to be feeble at 5-6%

Prabhudas Lilladher | Aug. 1, 2014, midnight

Credit growth continues its decelerating trend and is at 3.5% YoY as at Jan 2017.  Credit growth saw a marginal improvement of 0.7% MoM as seen from the RBI's monthly sectoral deployment data for Jan'17. Overall growth remained subdued as industrial credit de-grew 5.1% YoY, while growth momentum has slowed in Agri, Retail & Services. Retail loans have seen a slowdown to 12.9% YoY v/s 13.5% in Dec 2016 and 14.8% YoY in Nov 2016. Industry credit offtake was mixed, but large capex heavy segments continued to show higher de-growth. We believe loan growth will be slower than anticipated at 5-6% YoY in FY17 as banks re-adjust from de-monetisation effects in retail & services segment, while lower project capex & UDAY repayments will keep industrial segment offtake under pressure.

 - Retail growth momentum derailed mainly from housing segment:
Retail growth came off to 12.9% YoY v/s 13.5% in previous month which was mainly due to slower offtake in housing loans (54% of retail segment) which grew at 13.5% YoY v/s 14.8% YoY in previous month. Vehicle loan growth remained stable at 18.2% YoY, while all other retail segments saw better pick up especially in the unsecured segment.

 - Services sector offtake mixed with subdued demand from NBFCs: Services credit grew at 8.1% YoY on muted offtake in NBFCs (-0.6% YoY), transport operators (4.6% YoY) & CRE (0.9% YoY), but growth was supported from wholesale trade segment where growth improved to 7.6% YoY v/s 4.1% YoY from the previous month (where effect of demonetisation was visible) and strong growth in professional services which grew by 21.8% YoY and 5.4% MoM.

 - Industry Segment - Capex sectors de-growth continues; ancillary sectors seeing improvement: Industry credit which is 39% of overall credit continued to witness contracted 5.1% YoY led by slower offtake in capex intensive sectors (34% of industry credit) especially in infra & textiles. Under infra, power sector continues to see sharper decline (~11% decline) with one of the reasons being higher repayments under UDAY scheme and risk aversion by banks, while metals also continues to slow (0.5% YoY growth). After a long time cement sector saw marginal credit growth (0.5% YoY), construction segment continued to pick-up its growth (8.2% YoY and 1.1% MoM growth) while all ancillary segments showed mixed growth with no specific trends.

 - Sharper decline in large & medium industry segment
: Large industry segment saw sharp decline in credit at 4.4% YoY (flattish MoM & decline of 5% YTD), while medium industry segment witnessed a decline of 10.2% YoY and 2.2% MoM.

 - Agriculture growth remains subdued:
Agriculture credit growth was largely stable with 8.1% YoY growth with 1% MoM growth.

 - We expect the overall growth for FY17 to be feeble at 5-6% as growth will be led by Retail & Services segment. While, industrial segment has seen mixed trends, lower capex activity, UDAY repayments and risk aversion by banks towards large credit will keep overall growth muted.

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