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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily17042012.pdf
Banks/Financial Institutions
India
Sanction pipeline gets weaker. The loan growth environment continues to point to a
weak outlook for FY2013E as fresh sanctions seems to have declined by nearly 60% yoy
for 9MFY12 while the number of projects sanctioned declined 27% yoy. Government’s
inability to address the current impasse on many issues (telecom, mining, power, land
acquisition etc.) is leading to a non-conducive investment climate which has been further
accentuated by high interest rates. We may need to tweak our loan growth downwards
from our current estimates of 15-16% CAGR if the underlying environment prolongs.
Fresh sanctions decline by nearly 60% for 9MFY12; fairly weak FY2013 outlook on loan growth
A combination of (1) high interest rates, (2) policy bottlenecks created by the Government
resulting in a non-conducive investment environment for private entities, and (3) slowing macro
environment has resulted in a sharp slowdown in fresh sanctions for 9MFY12 – the implications of
which are likely to result in a subdued loan growth for FY2013E. Fresh sanctions declined by over
60% for 9MFY12 to `1.6 tn while the total number of projects sanctioned declined 27% yoy.
Historical analysis suggests an average of about 50-60% utilization in a year (based on the
previous four years’ data when compared to incremental loans) and these outstanding sanctions,
in the past, indicate a pipeline of 8-11% of outstanding loans for any given year. However, the
current data suggest an extremely weak visibility for FY2013E with the number expected to be
marginally better if utilization improves or sanctions increase sharply in 4QFY12 and 1HFY13 – an
unlikely scenario given the current macro conditions.
FY2012 loan growth at 17% yoy; deposits growth slower at 13% yoy
For FY2012, we note that loan growth for the sector was at 17% yoy while deposit growth
slowdown continued further at 13% yoy. Segmental data for loan break-up indicate a fairly broadbased slowdown in overall credit. Overall loan growth to infrastructure sector has slowed to 19%
as compared to 40% reported in FY2010-11 mainly due to a slowdown in disbursements to
distribution companies in power sector and repayments witnessed in telecom sector (-6% yoy).
We may need to tweak our current estimates of 15-16% levels for FY2012-14E
We have a growth estimate of 15-16% CAGR for FY2012-14E for the past few quarters. Public
banks, which grew their overall loans by 22% CAGR for FY2008-12E, will likely moderate to 15%
CAGR for FY2012-14E while private banks would grow at 19% CAGR for FY2012-14E as
compared to 17% in FY2008-12E. Growth for private banks would be higher mainly due to better
performance by ICICI Bank in recent years. A sharp decline in sanctions might require us to tweak
our estimates further unless we see a sharp improvement in the investment climate.
Infrastructure continues to remain a mainstay source of credit for the industry
From a near-term growth perspective, despite sanctions being weak, we continue to believe that
loan growth would be driven by infrastructure – sanctions for 9MFY12 continues to remain fairly
high in this segment and execution phase is fairly long as compared to other capex. Their share to
overall loans has grown to 15% in 3QFY12 as compared to about 10% in FY2009. Drawdown for
existing projects in the power portfolio would continue to remain the primary source of credit offtake in the near term. Pick-up in road activity remains the other near-term positive that we see
given the improved activity by NHAI in awarding new projects.
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