Motilal Oswal: India’s Financial Sector- Credit Growth Subdued; Retail Credit Moderates To Six-Year Lows  

Motilal Oswal Report

Banking financial services and insurance sector’s systemic loan growth moderated to 5.8% YoY (approximately 1% QoQ decline) for the fortnight ended July 17, 2020. The outstanding credit base has now reached Rs 102 trillion.

Retail credit growth moderated to 10.5% YoY (2.5% QoQ decline) versus 17% YoY (5.3% QoQ increase) in February 2020. Credit card growth moderated to approximately 3% YoY (approximately 10% QoQ decline) versus approximately 33% YoY (5% QoQ increase) in February 2020, while Auto loans grew 7% YoY (3% QoQ decline).

Growth in industry segment was subdued at 2.2% YoY while growth in Services segment moderated to approximately 10.7% YoY.Agri growth too remained muted at 2.4% YoY.

Most private banks reported sequential decline in loan growth during Q1 FY21 with Kotak Mahindra Bank Ltd./IndusInd Bank Ltd. reporting sharp QoQ decline of approximately 7%/4%. However, HDFC Bank Ltd. reported 1% QoQ growth (21% YoY).

The moderation in loan growth was due to (a) the Covid-19 led lockdowns, (b) weakening of credit demand in consumer retail/micro finance institution/small and medium enterprise segments, (c) banks’ cautious stance in lending.

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