Key Sector Data   Agg Public Banks Private Bank M-Cap (Rs 000 crore) 4596 1320 3276 M-Cap (US$ Bn) 553 159 394 P/E (ttm) 16.2 10.0 21.7 P/BV (times) 2.2 1.5 2.8 ROA (%) (ttm) 1.1 0.9 1.5 ROE (%) (ttm) 13.8 14.8 13.0 GNPA (%) 3.3 4.2 2.1 NNPA (%) 0.8 1.0 0.5 CRAR (%) 19.9 16.0 19.5 Loan growth (%) 19.4 13.2 29.0

The Scheduled commercial banks (SCBs) credit growth has improved on sequential basis to 20.6% YoY to Rs 15620554 crore as on 17 November 2023, compared with 19.8% growth a fortnight ago. The credit growth has improved from 16.1% at end November 2022.

Non-food credit, accounting for 99.7% of the share of the total credit, recorded a growth of 20.8%, YoY, at Rs 15580294 crore as on 17 November 2023 as against a rise of 19.9% fortnight ago and 16.5% rise a year ago. Food credit dipped 22.9% to Rs 40261 crore as on 17 November 2023.

The overall credit-deposit ratio eased on sequential basis to 79.5% as on 17 November 2023 from 79.1% a fortnight ago, while eased from 75.0% in November 2022 with the faster growth in deposits.

Sectoral deployment of bank credit

As per the data on sectoral deployment of bank credit as released by the Reserve Bank of India (RBI), non-food bank credit increased 19.8% in October 2023 over a year ago, showing acceleration in growth compared with 17.1% increase in October 2022.

The credit to agriculture increased at improved pace of 17.5% in October 2023, showing acceleration from 13.8% growth in October 2022. Meanwhile, the credit growth to the industry rose 5.9% in October 2023 compared with 13.5% growth in October 2022. Within the industrial segment, the advances to large industry rose 2.8%, while credit to medium industry moved up 12.1% in October 2023. The credit for the micro and small industry increased 16.9% compared with 20.2% growth in October 2022.

Credit growth to the services sector has accelerated to 23.6% in October 2023 compared with an increase of 22.5% in October 2022, driven by acceleration in credit growth for commercial real estate at 35.6%, other services 28.2%, aviation 66.8%, wholesale trade (other than food procurement) 17.9% and transport operators 22.7%, while credit growth has also improved for professional services to 19.5% and tourism, hotels and restaurants 11.7%. However, the services credit growth for NBFCs decelerated to 22.1%, computer software 0.8% and retail trade 19.9%, while the credit to shipping declined11.1% in October 2023.

Personal loans increased at an accelerated pace of 29.7% in October 2023 as against an increase of 20.5% in October 2022. Among the major segments of personal loans, the credit for housing increased at improved pace of 36.9%, other personal loans 24.9%, education 20.6%, credit card outstanding 28.0%, and loans against gold jewellery 17.3%. However, the credit growth has moderated for advances against fixed deposits to 16.5%, consumer durables 7.7%, and vehicle loans 20.0% in October 2023 from October 2022.

Priority sector loans growth improved to 18.5% in October 2023 compared with a 16.4% growth in October 2022. Among priority sector loans, the credit growth for Micro & Small Enterprises improved to 24.2%, Agriculture & Allied Activities 16.9% and Housing 17.3%, while credit to Weaker Sections eased to 16.8%.

Industrial credit growth

Credit to the industrial sector accounting for 23.2% of the total banking sector credit increased 8.6% in October 2023 compared with a rise of 13.6% in October 2022. As per industry-wise classification, the segments showing negative credit growth were petroleum, coal & nuclear fuels at (-) 22.7%.

However, the credit growth has moderated for infrastructure (2.3% from 10.9%) and chemicals & chemical products (4.5% from 25.1%). Further, the credit growth has also eased for rubber, plastic & their products (13.7% from 19.2%) and mining & quarrying (incl. coal) (5.9% from 10.8%). On the other hand, the credit growth has accelerated for textiles (16.9% from 4.4%), basic metal & metal product (20.2% from 14.1%), gems & jewellery (26.1% from 5.0%), construction (12.0% from 2.3%), food processing (12.5% from 6.9%), cement & cement products (19.6% from 7.9%) and other industries (15.8% from 13.6%).

Further, the credit growth has also improved for vehicles, parts & transport equipment (17.8% from 12.9%), beverage & tobacco (36.5% from 16.4%), glass & glassware (68.4% from 10.2%), wood & wood products (29.5% from 14.4%), paper & paper products (10.5% from 7.7%), all engineering (13.9% from 13.8%) and leather & leather products (7.2% from 6.1%), end October 2023 over October 2022.

Aggregate deposits

Aggregate deposits growth of the scheduled banks increased 13.6% YoY at Rs 19651777 crore as on 17 November 2023, compared with 13.4% growth a fortnight ago and 9.8% rise a year ago. The time deposits showed an increase of 13.8% at Rs 17344599 crore, while the demand deposits increased 12.5% to Rs 2307178 crore as on 17 November 2023.

Investments of the banking sector

The banks investment in government and other approved securities that qualify for treatment of statutory liquidity ratio jumped 19.3% YoY to Rs 6069047 crore as on 17 November 2023, showing acceleration in growth from 20.0% increase a fortnight ago. The banks investment had moved up 10.7% in November 2022. The investment-deposit ratio declined to 30.9% as on 17 November 2023, which is much higher above the Statutory Liquidity Ratio of 18.0%.

Outlook

The banking sector has continued to post robust earnings show with record high net profit for Q2FY2024. The banking loan growth is healthy across the segments. The loan growth would be driven by retail and SME segments, while the growth is likely to moderate on high base. The recent hike in risk weights for unsecured consumer credit, credit cards receivables and non-priority NBFCs may also have some impact on credit growth ahead.

The deposit growth has accelerated to 14.4% end September 2023 with further acceleration in term deposits growth to 21%. However, the Casa deposits growth moderated to 5% and Casa deposits ratio has eased to 4-year low and slipped below 40% at 38.7% end September 2023. The banking sector would continue to witness pressure on low cost Casa deposits with tight liquidity conditions and high term deposit rates.

The banking sector has witnessed further moderation in margins in Q2FY2024, while the margins also declined over a year ago after growth for previous nine straight quarters. The margins would continue to witness pressure from rising cost of deposits and tightening liquidity conditions. The competition for deposits would keep deposit rates higher and decline in the share of low cost Casa deposits would further weigh on margins.

The core fee income and treasury income has been strong in the first half of FY2024. The core fee income may remain steady with stable business activity. However, the hardening of Gsec yield in Q3FY2024 with tight liquidity conditions may limit treasury gains and may also cause higher provision for depreciation of investment book.

The asset quality and stressed asset level of the banking sector has continued improve with dip in fresh slippages of loans. The strong PCR levels and healthy contingency provision buffers have led to sharp decline in credit costs for banks. The fresh slippage of loans is likely to remain under control, despite some concerns for asset quality in the unsecured loan segment.

The banks with strong liabilities franchise and healthy capital adequacy are better placed to sustain strong loan growth. The earnings momentum of the banking sector is likely to remain healthy with double digit loan growth and low credit cost supporting return ratios in FY2024.