The latest credit and deposit statistics highlight some noteworthy trends in the Indian economy. During the first fortnight of June 2023, the credit offtake continued to grow at a healthy pace of 15.4% (yoy); though it slowed down on sequential basis. The deposit growth accelerated to 12.1% (yoy) narrowing the gap between credit-deposit growth to 337bps, the lowest in over a year. The gap recorded a high of 875bps in November 2022. Rise in deposit rates and withdrawal of Rs2000 denomination currency notes primarily led to the rise in deposits.
Credit deposit ratio at pre pandemic levels
The Credit to Deposit ratio has been generally improving since the later part of FY22 due to faster growth in credit compared to deposits. On a sequential basis in June 2023, it improved by 60 bps from the immediate fortnight (reported June 2, 2023, due to lower deposit growth than credit growth. The CD ratio is now closer to the pre-pandemic level of 75.8% in Feb 2020 and 75.7% in March 2020.
Liquidity tightening again
The liquidity in the banking system had shown significant improvement in the month of May due to deposits of Rs2000 currency notes and higher government expenditure, However, as per the latest statistics, the system liquidity had reduced to Rs0.83trn on 16 June 2023, as compared to Rs2.4trn on 02 June 2023. The weighted average call rate (WACR) was thus higher at 6.1% in the fortnight ended 16 June 2023, as compared to 4.5% in the comparable period in the previous year.
Personal and rural credit driving credit growth
The bank credit growth in recent months has been largely driven by personal loans, credit to NBFCs (largely consumer focused) and rural credit. A large part of incremental credit therefore could be unsecured.
In the month of May2023 about 42% of total outstanding bank credit was deployed in personal loans including credit card outstanding, and rural (non-food) loans. Personal loans (up 19.2%) were the fastest growing category in May 2023 (vs May 2022 as well as May 21). Credit card outstanding grew at over 30% (yoy) in May 2023.
Within personal loans unsecured loans grew 24% in May 2023, the fastest for any category. Food credit has been degrowing for almost two years, and now accounts for less than 0.25% of the total outstanding bank credit.
Housing loans (share of 47.3% within personal loans) grew by 14.6% y-o-y in May 2023 compared to 13.6% a year ago. Despite reporting healthy growth, the share of housing loans reduced to 47.3% in the personal loans segment as of May 19, 2023, vs. 49.2% over a year ago as unsecured loans grew at a faster pace.
Loans against gold jewellery also witnessed a strong growth of 22.1% y-o-y vs. a drop of 2.2% in May 2022 due to a sharp increase in gold prices in May 2023 vs May 2022. As the price of gold rises, it gives borrowers an additional opportunity to get more credit from the banks with the same quantity of gold.
Credit to NBFCs growing as faster pace
Lending to NBFCs grew by 27.6% y-o-y in May 2023. It continued to be driven by healthy growth reported by NBFCs for their loan disbursement and a shift of borrowings to the banking system. The Mutual Fund (MF) debt exposure to NBFCs also rose by 15.7% (yoy). The total bank lending to NBFCs has almost grown 3x in the past five years. The sharp rise in the popularity of equity funds in the past 5yrs has resulted in slower growth in the debt fund AUM of mutual funds; leading to the rise in reliance of NBFCs on bank credit. Besides, the international borrowings of NBFCs have also registered material decline in the post pandemic period.
Robust growth in credit to service sector
Service sector credit grew at a robust 21.4% in May 2023. Lending to NBFCs (27.6%) and Trade (17.5%) were the notable contributors in the service sector credit growth.
Industrial credit growing at slower pace
The credit outstanding of the industry segment registered a moderation in growth at 6.0% y-oy in May 2023 from 8.8% in the year-ago period. The outstanding credit to industry accounted for ~24% of the total non-food outstanding. The credit to large industries grew just 3.9% (yoy), while MSME credit grew 12.3%.
The credit to infrastructure segment rose by 1.8% vs. 9.8% over a year ago period due to a slower growth witnessed by the power and road, also a drop in telecommunication and port segments. Overall, slow growth in infrastructure impacted the industry growth. The power segment, which accounts for over half of the infrastructure sector credit, witnesses a marginal growth of 0.3% in May 2023 vs. 9.3% in May 2022.
Asset quality improves NPAs fall to historic lows
Net Non-Performing Assets (NNPAs) of SCBs reduced by 34.0% (yoy) to Rs.1.3trne as of March 31, 2023. The NNPA ratio of SCBs reduced to 0.95% from 1.72% in Q4FY22 which is significantly better than the 2.1% level of FY14.
The GNPA ratio of SCBs reduced to 3.96% as of March 31, 2023, from 6.04% a year ago, and 7.58% as of March 31, 2021.
Accordingly, the provision coverage ratio of scheduled commercial banks (SCBs) improved to 76.3% at the end of March 2023.
For 4QFY23, the credit cost of SCBs stood at 0.58% sharply lower as compared to 1.44% seen in 4QFY21.
(Inputs taken from reports of RBI, SBI, and CARE Ratings. All rights duly acknowledged.)
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