Corporate credit slipping or bottoming? :: Nomura Research

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 Overall corporate credit offtake not as bad as indicated by RBI data: RBI data on bank corporate credit indicates a slowdown from ~14% y-y growth in May-14 to ~7% y-y growth in Jan-15. While part of the drop was due to bond substitution, investors have been concerned over the pace of the drop in corporate credit offtake despite stabilising macros. Overall, corporate debt after adding bonds/CP/ECBs (credit substitutes) has increased by 10% y-y and our analysis indicates that corporate debt growth bottomed in mid-CY14 (10% y-y growth in mid-CY14 and 10% y-y growth now) unlike the falling corporate credit demand indicated by RBI data (7% y-y growth now, vs. 14% growth in May-14).  Absolute corporate debt offtake now increasing, but pick-up likely to be gradual: The incremental yearly corporate credit offtake from banks has contracted from INR4trn in mid-CY14 to ~INR2.5trn in the past 12 months, but the overall corporate debt offtake from all sources (including bonds/ECBs/ CPs) bottomed in mid-CY14 and there has been a marginal uptick in the past six months. However, the overall corporate debt increase of INR6trn still remains ~30% lower than FY13’s peak demand of INR8- 9trn, and with negligible new private project announcements, improvement in industrial credit offtake will remain gradual, in our view.  Including credit substitutes, we expect FY15F growth of 12% and FY16F growth to inch up to 13.5%, driven by 18% retail growth and 12% corporate growth. While overall growth levels will remain slower than the historical level, the good part is that investors are not discounting too much market growth expectations for PSUs and for private banks, a pickup in retail credit and importantly increasing market share is aiding reasonable credit growth. We expect private banks to gain ~150-200bps annual market share as PSUs slow down with Yes/Axis/ICICI (all Buy ratings) being primary beneficiaries in the long run.