Loan Growth Fell To Demonetisation Lows In Q2 Of 2019-20: Credit Suisse
Loan growth across private and public sector banks and NBFCs fell to 6% in the second quarter of 2019-20, Credit Suisse says.
Loan growth continued to fall in the second quarter of 2019-20, with the pace of expansion slipping to levels seen during the period of demonetisation when banks, burdened with the cash exchange programme, had reduced lending activity sharply.
Loan growth across banks and non-bank lenders, including housing finance companies, fell to 6 percent in the July-September period, showed data compiled by Credit Suisse in a report dated Nov. 11. The slowdown was a combination of a sharp drop in disbursements from non-banking financial companies and moderation in credit flow from private and public sector banks, Credit Suisse said.
NBFCs and HFCs saw their overall loan growth slow to about 7 percent year-on-year from 24 percent a year ago. This was accompanied by a 32 percent drop in disbursements compared to the year-ago period.
Across banks, credit growth for private banks moderated to 14 percent year-on-year from 22 percent a year ago. Public sector lenders saw only a 5 percent year-on-year credit growth, compared with 8 percent in the April-June period, despite improved availability of capital, according to Credit Suisse.
NBFC Squeeze Continues
Funding for NBFCs remained constrained during the quarter with some of the new sources of liquidity starting to get saturated.
Bank lending to the NBFC segment rose to 30 percent year-on-year and now constitutes 8.5 percent of all bank lending. “With most PSU banks’ NBFC exposure now at 10-15 percent of their loan book, headroom for incremental funding is low,” Credit Suisse said.
NBFC access to liquidity via mutual funds and debt markets remains patchy.
Mutual funds have cut their NBFC exposure by nearly 30 percent year-on-year, while commercial paper issuances have also dropped, the report said. Overall bond issuances have been tepid for the NBFC segment, where aggregate issuances have dropped 40 percent year-on-year.
Moreover, the market continues to differentiate among NBFCs.
“The better-perceived NBFCs have been the beneficiaries of the excess system liquidity and the RBI’s repo rate cuts, with their incremental CP issuances now at (less than) <5.5 percent. In contrast, some of the other NBFCs like JM Financial Services and Piramal Capital and Housing Finance are still borrowing funds at 9-10 percent,” the report said.
NBFCs and housing finance companies have relied on selling down their loan books to manage tighter liquidity conditions over the last 12 months. However, their ability to sell down further would be limited, Credit Suisse said.
“While the pace of sell-downs has been rising for most NBFCs, with 25 percent of AUM already sold down by Indiabulls HF (Housing Finance), the stock of ‘off-book AUM’ has declined over past two quarters, indicating limitations to further sell-down,” the report said.
Bank Lending Weakens
The quarter also saw both private and public sector lenders pull back on loan growth despite improved availability of capital and liquidity.
In particular, public sector banks saw a drop in loan growth to 5 percent over last year. Earlier this year, the government decided to front-load capital infusion into these lenders and has been pushing them to step up the pace of credit approvals.
This is yet to show results, suggests the data.
“With moderation in loan growth, PSU banks have seen a further drop in their loan deposit ratios. Despite the moderation in loan growth for private banks, LDRs remain stretched at 90-110 percent,” Credit Suisse said.
Private banks continue to grow at roughly twice the credit growth seen at the system level. Private bank credit grew 14 percent in the second quarter, show the data.
