6 May 2022 , 10:39 AM
Furthermore, the reversal of the interest rate cycle as signified by the 40bp increase in repo rate by the Reserve Bank of India would weigh down on the credit growth as borrowings become costlier.
Ind-Ra based on the feedback from its rated issuers understands that capex revival could get delayed as many of them have deferred their capex plans as they await more clarity on the macroeconomic front. Furthermore, the ongoing conflict has raised concerns on the continuation of the pace of exports. The sectors which are likely to continue to perform well include power, metals, cement, chemicals and textiles, while the sectors that are likely to be under pressure include telecom, pharma, and commercial real estate. In its banking outlook report published in February 2022, the agency has estimated 10.0% yoy banking system credit growth for FY23 based on a bottom-up estimate across sectors.
In the near term, a continuing working capital demand from corporates, driven by high commodity prices and the beginning of a shift back to the banking system from the bond markets amid rising interest rates which would keep the credit growth drivers in place. The industry segment grew 6.5% yoy in February 2022 in comparison to 0.4% yoy in March 2021. Pick-up in growth is seem across all three segments — micro and small, medium and large. The agency believes that from an incremental contribution perspective, the medium segment was the largest contributor and was driven by disbursements under the Emergency Credit Line Guarantee Scheme. The micro and small segment is the second largest contributor, largely driven by inflationary pressures on working capital requirements. The large industry segment which constitutes nearly 77% of the industry segment has also started reporting credit growth in comparison to deleveraging in 2021.
The services segment has also shown buoyancy in credit growth at 5.6% yoy growth in February 2022 in comparison to 1.4% yoy March 2021. On an incremental yoy contribution basis, the services segment contributed 18.7% to the overall credit growth in February 2022, the same was only 7.9% in March 2021. The largest contributors to the incremental yoy growth reported in the services sector primarily come from two segments — non-banking finance companies and trade.
With the COVID-19 impact fading away, banks are becoming increasingly amenable to lending to these segments and it is also a function of a pick-up in demand as seen by these end-segments. Within non-banks, housing finance companies had about 50% share in the yoy incremental contribution in February 2022.
Retail loans continue to be the single-largest contributor to the incremental yoy growth, although the proportion declined to 42.7% in February 2022 from 57.7% in March 2021. Retail loans grew 12.3% yoy in February 2022 compared to 10.2% yoy in March 2021. The proportion of home loans, which constitute about 47.7% of the total banking system retail loans, has seen a decline in the growth rate to 6.7% yoy in February 2022 from 9.0% yoy in March 2021. The agency believes that while demand for residential real estate continues to be buoyant and banks continue to keep competitive intensity high, housing finance companies have bounced back sharply, thus partially leading to the slowdown for banks in the segment.
In terms of the share in incremental contribution, Ind-Ra has observed that unsecured loans have more than 50% share in the incremental yoy retail loan growth since July 2021, signifying that banks are looking to grow these businesses in search of higher margins. However, they are doing the same cautiously with tighter credit filters, post their experience with the segment during COVID-19.
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