Non-food credit growth accelerates to 12.6% in May, the fastest pace since the pandemic

Non-food credit grew 12.6% year-on-year (YoY) in May 2022 (vs. 11.2% in April 2022), according to data published by Reserve Bank of India (RBI). 

This is the fastest pace of YoY growth reported by the banking sector since the pandemic's start. YoY growth has been within the range of 5.4% to 12.6% over the last 12 months.

On an month-on-month (MoM) basis, however, credit grew by 60 basis points (bps) in the month of May (vs. 69 bps in April 2022). Whereas MoM growth was largely muted, this is consistent with the seasonal effect wherein Q1 tends to have the lowest growth of any quarter. Nevertheless, 60bps MoM growth is the highest figure for the month of May since 2013, said Edelweiss in a report.

With the MoM growth in April also being high by historical standards, Q1 of this year is likely to be stronger than that of recent years. MoM growth for industrial credit and credit to services picked pace in May, but the personal loans segment witnessed a slowdown.

The slowdown is largely attributable to muted MoM growth in housing loans and credit card outstanding. Overall non-food credit of the banking industry towards the end of May stood at ₹112 lakh crores (preceding 12 months’ average growth: 8.3% Y-o-Y).

"With the impact of COVID seemingly behind us for good, "We expect credit growth to further accelerate in FY23 as there are strong signs of industrial CAPEX activity in the near future and secured retail loans are showing healthy traction." Banks are well capitalised and still have excess liquidity to deploy. Thus, a pickup in growth seems imminent, barring any unexpected economic shocks, "said Edelweiss.

Personal loans

Personal loans grew 16.4%/0.7% YoY/MoM and stood at ₹35 lakh crores towards the end of May (preceding 6 months’ average growth of 2.5% MoM). Despite the slowdown in MoM growth, the PL segment contributed to 37% of incremental credit in May. Credit card/housing sector/vehicle loans increased by 30%/14%/14% year on year. The "Other Personal Loans" category (+22.4%/+2.1% YoY/MoM) contributed to a whopping 74% of the incremental credit in the Personal Loans segment. Loans against gold jewellery de-grew for a second consecutive month.

Further, credit card outstanding has registered a 30.1 per cent rise to ₹154,137 crore as of May 2022, making it the fastest-growing segment in the personal loan category, as against a growth of 14.3 per cent at ₹118,512 crore a year ago.

As per RBI data, monthly spending on credit cards is now above ₹one lakh crore. Card spending in May touched ₹1.13 lakh crore, as against ₹1.05 lakh crore in April and ₹1.07 lakh crore in March. The latest monthly spending is almost double when compared to the last year when, in April 2021, monthly spending was ₹59,000 crore, The Indian Express reported.

In April 2020, credit card spending had plummeted to just ₹20,765 crore as the COVID pandemic hit the country and consumer spending declined steeply.

Credit card spending is likely to rise further as the RBI has recently made an interesting proposition to make credit cards available through the UPI network on Rupay-based credit cards.

On the other hand, spending through debit cards was ₹65,062 crore in April 2022 and ₹64,052 crore in March. However, cash withdrawal through ATMs using debit cards was ₹2.85 lakh crore in April 2022 as against just ₹303 crore through credit cards. There were 7.52 crore credit cards and 92 crore debit cards as of April 2022.

Industry credit

The credit to the overall industrial segment grew 8.7%/0.4% YoY/MoM. Within the industrial segment, credit to micro and small enterprises grew 33% YoY (the fastest for the month of May since at least 2008, which is as far back as our data extends) and 1.2% MoM. Credit to medium enterprises grew by 49% YoY (the fastest for the month of May since at least 2008) and 0.2% MoM.

The ECLGS scheme has been extended till March 2023, ensuring constant support to the MSME segment. Credit to large enterprises, following two consecutive months of de-growth (MoM basis), has seen positive growth in May (+1.9%/+0.2% YoY/MoM).

"We expect industrial credit to continue growing in the near future because green shoots are visible for the Capex cycle." "Many bank executives have stated that they expect Capex-related lending to increase in the coming quarters," Edelweiss said.

Services credit

Credit to the services segment stood at ₹30 lakh crores towards the end of May 2022, contributing to 37% of incremental credit for the month of May. Within services, "trade" (+13.4%/+1% YoY/MoM) and "other services" (+8.8%/+1.7% YoY/MoM) were the major drivers of growth. These categories accounted for 30% and 38% of the incremental credit to the services sector, respectively. Credit for "Transport Operators", "Computer Software", "Tourism, Hotels and Restaurants", "Shipping", and "Aviation" all de-grew MoM. Credit to NBFCs increased by 20.6%/0.4% year on year/month on month.

Over the last couple of years, the services segment has been hit disproportionately hard by COVID-19, particularly transport operators, THR, and aviation. However, over the last few months, growth in the overall segment has been encouraging. Going forward, Edelweiss expects the overall services segment to continue reporting healthy growth.

“Overall banking credit is expected to grow in the low-to-mid teens over the next two years as a result of the following factors: visible green shoots in industrial Capex; ongoing support from regulators and the central government will drive credit growth to the MSME segment; banks have ample liquidity and a comfortable capital adequacy ratio; overall stress is well within expectations,” Edelweiss said.

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