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India Equity Research Reports, IPO and Stock News
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Loan growth slows, led by infra
A sharp decline in growth of infrastructure loans, from 39% in Mar-11 to
23% in Aug-11, has led to moderation in bank credit growth to 20%. The
pressure from slowing growth in infrastructure segment was partly offset
by healthy demand for working capital and retail loans. Retail credit is
being driven by mortgages as demand for car loans fell. With incremental
loan growth being driven by working capital loans, banks with lowest
funding costs will gain market share. ICICI Bank and HDFC Bank remain
our top picks, due to a stronger liability franchise and higher ROA.
Sharp slowdown in infrastructure loan growth
q Corporate credit constitutes ~70% of Indian banking sector’s credit and has
been the key driver of its 20% growth till Aug-11.
q Moderation in credit demand from this sector also reflects in the slowdown in
the overall credit growth from 23% till early 2011 to 20% now.
q Within corporate segment, slowdown in infrastructure loan growth (from 39%
in Mar-11 to 23% now), has contributed most to the overall slowdown and
reflects on the slowdown in new project announcements due to policy deadlock
and operational bottlenecks.
q Surprisingly, despite so much concern on power sector, the growth in power
sector loans has moderated only from 43% to 36% (Mar-Aug 2011). The
biggest slow down has happened in the telecom sector loans (decline of 5%
v/s 69% growth in Mar-11) as companies seem to be refinancing their loans
for 3G licences.
Working capital loan demand high due to prices, rise in inventory
q While the overall loan growth has moderated, growth rate in ex-infra bank
loans has remained stable near 19-20%.
q Moderation in infra-loan growth has been partly offset by rise in demand for
working capital loans led by YoY rise in commodity prices (flat/ down in recent
months), inventory build-up and depreciation of Rupee.
q This is visible in the uptick of credit growth rate of some working capital
intensive sectors like metals, textiles and petroleum.
q Credit to NBFCs continues to grow at a strong rate of 55% YoY; whereas
growth in credit to real estate sector has moderated to 16%.
Retail growth led by mortgages
q Growth in the retail credit, which accounts for 18% of total credit, has been
stable near 16% YoY driven by secured segments like mortgages, auto loans
and loans against deposits
q While growth in the mortgage segment has been stable near 15%, auto loan
segment has witnessed some moderation from 24% in Mar-11 to 21% now.
q Credit card loans (3% of retail loans) have remained flat YoY.
q Nearly 65% of mortgage loans are in mid-market segment with ticket-size of
up to Rs1.5m and this reflects on the (1) broad-based lending by banks and
(2) stronger asset quality of this segment.
17% loan growth in FY12; high CASA banks to gain market share
q We expect growth in bank credit to moderate over 2HFY12 to end FY12 at 17%
versus RBI’s expectation of 18%.
q As credit demand slows and loan-mix shifts in favour of working capital loans,
banks with higher share of CASA deposits, hence lower cost of funding, will be able
to win market share.
q HDFC Bank would be the key beneficiary due to (1) high CASA ratio and (2) focus
on retail and working capital loans where growth has been much more buoyant.
q We continue to prefer banks with strong liability franchise, strong asset quality and
higher ROA with ICICI Bank and HDFC Bank being our top picks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Loan growth slows, led by infra
A sharp decline in growth of infrastructure loans, from 39% in Mar-11 to
23% in Aug-11, has led to moderation in bank credit growth to 20%. The
pressure from slowing growth in infrastructure segment was partly offset
by healthy demand for working capital and retail loans. Retail credit is
being driven by mortgages as demand for car loans fell. With incremental
loan growth being driven by working capital loans, banks with lowest
funding costs will gain market share. ICICI Bank and HDFC Bank remain
our top picks, due to a stronger liability franchise and higher ROA.
Sharp slowdown in infrastructure loan growth
q Corporate credit constitutes ~70% of Indian banking sector’s credit and has
been the key driver of its 20% growth till Aug-11.
q Moderation in credit demand from this sector also reflects in the slowdown in
the overall credit growth from 23% till early 2011 to 20% now.
q Within corporate segment, slowdown in infrastructure loan growth (from 39%
in Mar-11 to 23% now), has contributed most to the overall slowdown and
reflects on the slowdown in new project announcements due to policy deadlock
and operational bottlenecks.
q Surprisingly, despite so much concern on power sector, the growth in power
sector loans has moderated only from 43% to 36% (Mar-Aug 2011). The
biggest slow down has happened in the telecom sector loans (decline of 5%
v/s 69% growth in Mar-11) as companies seem to be refinancing their loans
for 3G licences.
Working capital loan demand high due to prices, rise in inventory
q While the overall loan growth has moderated, growth rate in ex-infra bank
loans has remained stable near 19-20%.
q Moderation in infra-loan growth has been partly offset by rise in demand for
working capital loans led by YoY rise in commodity prices (flat/ down in recent
months), inventory build-up and depreciation of Rupee.
q This is visible in the uptick of credit growth rate of some working capital
intensive sectors like metals, textiles and petroleum.
q Credit to NBFCs continues to grow at a strong rate of 55% YoY; whereas
growth in credit to real estate sector has moderated to 16%.
Retail growth led by mortgages
q Growth in the retail credit, which accounts for 18% of total credit, has been
stable near 16% YoY driven by secured segments like mortgages, auto loans
and loans against deposits
q While growth in the mortgage segment has been stable near 15%, auto loan
segment has witnessed some moderation from 24% in Mar-11 to 21% now.
q Credit card loans (3% of retail loans) have remained flat YoY.
q Nearly 65% of mortgage loans are in mid-market segment with ticket-size of
up to Rs1.5m and this reflects on the (1) broad-based lending by banks and
(2) stronger asset quality of this segment.
17% loan growth in FY12; high CASA banks to gain market share
q We expect growth in bank credit to moderate over 2HFY12 to end FY12 at 17%
versus RBI’s expectation of 18%.
q As credit demand slows and loan-mix shifts in favour of working capital loans,
banks with higher share of CASA deposits, hence lower cost of funding, will be able
to win market share.
q HDFC Bank would be the key beneficiary due to (1) high CASA ratio and (2) focus
on retail and working capital loans where growth has been much more buoyant.
q We continue to prefer banks with strong liability franchise, strong asset quality and
higher ROA with ICICI Bank and HDFC Bank being our top picks.
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